Tuchen excited about the once-in-a-generation redefinition of the data industry.
Following the news that business software company Informatica is to go private in a deal worth $5.3bn, CBR sat down with Talend CEO Mike Tuchen for his take on the deal and what it means for the industry.
EB: Do you think Informatica going down the private equity path was a good move for the company?
MT: I believe it is a good deal for the major stakeholders. Time will tell if the deal turns out to also be beneficial for Informatica partners, customers, and employees. We’ve heard some of these latter audiences express concern over the shift in ownership and what it might mean for their future experience with the company.
Although the takeover premium was only about 5% when compared to the week before the deal was announced (which has resulted in shareholder lawsuits due to its relatively small size), a more meaningful measure is to compare the stock to where it was in the middle of last year before sale rumours started to circulate. On that basis, the stock was up about 60% which demonstrates that the major stakeholders were able to significantly increase the company’s value through the sale.
EB: Why do you think they took the private equity path?
MT: I think it was likely the best path available to the major stakeholders at Informatica. Two separate times in the last 6-9 months different activist investors purchased stakes in Informatica and sent letters to their board of directors asking for them to explore strategic options to maximise shareholder value. At that point, it was their fiduciary duty to investigate strategic alternatives to increase value.
As a result, Informatica ran two investment-banker led processes, one last fall and one early this year that approached both potential strategic acquirers as well as PE firms. Although Informatica has a strong customer base and solid product offering, I believe they weren’t attractive to strategic buyers because well over 90% of their business is on-premises software sold in a perpetual license model. That’s exactly the kind of business that the large strategic acquirers like SAP, Oracle, and HP are trying to get away from as they move to subscription and cloud offerings.
On the other hand, they were a very attractive target for PE firms due to their stable business, low debt position, and solid margins and cash flow.
The second process led to several competing bids and a successful sale to Permira. It’s not clear as yet what strategic direction the Permira team will take, although we know they took on $2.7B of debt as part of the deal. In order to pay down the debt and get into a position where they can start sending dividends to the PE firms to deliver the financial returns they’ve modelled in their investment plan, they’ll need to follow the standard PE playbook: cutting expenses in areas like G&A, sales, marketing, and support to increase cash flow. This could be very problematic for Informatica given how quickly the market is evolving and the pace with which companies are transitioning from legacy data management providers.
EB: Can we expect to see other companies in the infrastructure software environment follow in the footsteps of Informatica?
MT: Yes, as long as interest rates remain low I expect that we’ll see continued strong PE activity in the software space broadly, not just infrastructure. PE firms are looking for companies with stable businesses, strong margins and cash flow, and low debt that are investing for growth but not seeing the growth they anticipated.
This allows them to reduce what they see as wasteful growth expenses and instead manage the businesses to maximise cash flow. Tibco and Informatica are both good examples of this, and we can find plenty more potential targets in the software world if we look around.
EB: Are we now starting to see a tectonic shift towards cloud-based solutions in the integration landscape?
MT: There is a tectonic shift happening, but the shift is broader than the integration market and the cloud is only a part of the equation. What we are experiencing is a once-in-a-generation redefinition of the entire $50 billion data industry, starting from the bottom up.
Big data companies like the Hadoop vendors are redefining how companies store and analyse data, allowing companies to start taking full advantage of the growing mountains of data they’re getting from internet-facing services, sensors and machine-generated data. At the next layer up, the integration landscape is being redefined in turn to fit into the big data model. New integration solutions are being created to run at the scale and speed required for large volumes of data and support more attractive economics. At the same time, companies are using more and more cloud applications that need to be connected together, and they need to be connected to their existing premises infrastructure.
All of this is resulting in the integration market shifting away from legacy premise-based integration software sold on a license basis and moving to agile and modern integration solutions like Talend that are optimised for Hadoop and big data, open source and the cloud.
EB: What does this mean for the on-premise integration market?
MT: Traditional, on-premise providers, companies not well positioned to take advantage of the massive market shift, will essentially be market-share donors for the foreseeable future. Companies that are optimised for Hadoop and big data, open source and the cloud are driving the shift and will be the future of the integration market. At Talend we’re fortunate to be one of the latter companies.
EB: What are Talend’s plans over the next 12 months?
MT: We’re heads down growing the business, hiring as fast as we can in areas like sales, marketing, and engineering. We’ll be growing our international footprint as we expand into new countries in Asia, Latin America, and more of Europe. We’ve got the most exciting roadmap we’ve ever had that will bring significant innovations to the market over the next year.
Last year we grew new subscriptions for Big Data and Master Data Management solutions by 122% and 86% respectively, and in Q1 we accelerated with 78% growth across the business, powered by 172% growth in big data. We made an early bet on Hadoop and have by far the best solutions for companies adopting it, and now we need to hang on as the twin rocket boosters of big data and cloud power our business.
As long as we continue to execute well, we will continue to be the major recipient of market share donations from legacy incumbents like Informatica and Tibco.