Private equity spinout and former venture-backed private company Dynatrace priced its IPO last night at $16 per share. The Thoma Bravo-owned company had initially targeted an $11 to $13 per-share IPO price range. That interval was raised to $13 to $15 before the company sold 35.6 million shares at the final price. At the end of trading on its first day as a public company, Dynatrace saw its shares climb by 49 percent, or $7.85, to close at $23.85.
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The 26-year-old company was worth around $4.5 billion at its IPO price, not including shares reserved for possible purchase by its underwriters.
History And Application
When private and independent, Dynatrace raised from Bain Capital Ventures and Bay Partners across a $5 million 2007 Series A, a $12.9 million 2008 Series B, and a small 2011 venture round of just $4 million.
You can see a bit of the financial crisis in the firm’s fundraising. Compuware bought the company for $256 million in 2011, the same year as its small venture round. Later, private equity shop Thoma Bravo bought Compuware for $2.4 billion in 2014.
Thus, Thoma Bravo owned Dynatrace, and is now spinning it out. In standard private equity fashion, Dynatrace has about $1 billion in long-term debt. Such is the price of being acquired by a PE-firm. (It’s worse if you are a newspaper or retailer, of course; merely being saddled with debt to enrich already-wealthy fund LPs is par for the course.)
In its own words, Dynatrace uses AI to provide “software intelligence to simplify enterprise cloud complexity and accelerate digital transformation.” It’s industry agnostic, working with a variety of companies in sectors such as retail, transportation and government, among others. Customers include KeyBank, DISH, grocer Kroger and SAP, again among others.
For the financial friends among us, a reminder that Dynatrace is an interesting debut as we’re seeing it go public in the midst of a transition to SaaS. The company is moving away from licensing revenue towards recurring subscriptions, something that companies large and small have undergone in recent years.
For Dynatrace it means somewhat slow aggregate revenue growth while it exchanges legacy (license) revenue for modern (recurring) top line. However, as we wrote before, the cost of moving to SaaS has been steep for Dynatrace, which has swung from profits to nine-figure losses in its last fiscal year.
We struggled to understand how to price the company given its mid-molt IPO. (For an idea concerning why Dynatrace would go public now instead of when its SaaS-migration was complete, head here.) But investors seemed to have no issue not only pricing the firm, but pricing it higher than its first two sets of expectations.
We’ll update this post at the end of the day when it closes and sets a final, first-day price for itself.
Illustration: Li-Anne Dias.