Comment Why did Borland change its mind about selling off its IDE tools to a third-party? According to Mike Hulme, Borland’s senior director of product marketing, it was a simple decision. “The one-time cash-flow from the sale did not match what we think we can get from an overall profitable business. It’s a no-brainer to say that it’s much more attractive to keep the business, run it as a subsidiary, and take a predictable profitability stream from that business,” he told Reg Dev.
It remains a strange turn of events that takes some explaining. In February, Borland announced that it would seek a buyer for its IDE tools. Nine months later, there is no sale after all. Hulme says there was no lack of interest: “There were five serious bidders, a combination of vendors having a diverse product portfolio, and private equity organizations that were looking to run a standalone IDE business”, he says. That said, there was not enough cash on the table. “In terms of valuation, let’s just say we were that far enough apart, it was obvious that the positive cash flow from the profitable IDE business was much more attractive for us.”
The IDE business faces obvious challenges, yet Hulme insists it is still profitable, especially on the Windows side. “Within Borland the Delphi business is actually one of the most attractive businesses that you can be in. It’s an incredibly loyal base of customers and the revenue streams are extremely stable.”
He is also keen to emphasize that CodeGear really will be a separate company. “CodeGear will be run as a fully functional, separate organization, in fact there won’t be any employees from either organization whose job function is to service both entities. Profits from CodeGear will have the benefit of being reinvested.” The new business will also have its own premises.
This meets one of the original goals of the divestiture. Borland says that the ALM market is very different from the IDE market, requiring a distinctive approach. “We also wanted to create a distinction of brand between Borland indicating an ALM vendor, and some other brand indicating an IDE vendor,” says Hulme.
The outcome for Borland’s customers is mixed. Some will view it with relief. At least there is no longer any prospect of Delphi disappearing into some company’s “diverse product portfolio”, or of Borland’s ALM team struggling to license back its own former technology to maintain the current level of integration. On the other hand, the hoped-for injection of cash from a sale has not been achieved, so there remains a risk of under-investment on one or both sides of the deal.
Borland’s Q3 results show a loss of $12.2m on revenues of $82.4m. Still, the ALM business is growing strongly, and accounts for nearly 70 per cent of this income. The company deserves credit for successfully transitioning its business from one that was primarily about development tools, even though profitability remains elusive. It won’t be easy on the CodeGear side, but Delphi 2006 is a decent product and the recent Turbo-branded marketing push shows renewed vigour. As Hulme notes, “The original goals for all of this were to create two businesses that were focused on their unique markets. No matter how we got there, that’s definitely what we’re accomplishing.”