Anatomy of a $256M Acquisition: The Story of DynaTrace, Compuware, and Bain Ventures

Benjamin Nye has an eye for the Benjamins. That’s not quite a palindrome, but it does sum up Nye’s track record as a tech investor.

Nye, a managing director with Bain Capital Ventures, has had a string of strong exits—including Network Intelligence (bought by EMC in 2006), SolarWinds (IPO in 2009), and LinkedIn (IPO this year). The latest deal came in the past week, when Waltham, MA-based DynaTrace was snapped up by Compuware (NASDAQ: [[ticker:CPWR]]), the Detroit software firm.

The technical details of what DynaTrace developed (see below) might not be as important as these numbers: $256 million in cash for the acquisition (on about $22 million total invested by BCV and Bay Partners), translating into a 7.2X return on BCV’s investment, Nye says.

Here’s how it all went down. First, let’s rewind to 2006. Nye had heard from a former CEO of a company he was looking to buy that DynaTrace, an interesting year-old startup, was being run by the “smartest guy” he knew. The only problem was the startup was in Austria, so Nye took the entrepreneur call with what he calls “high skepticism.” By the end of the call, however, he was intrigued: DynaTrace had solved a problem that Nye had run up against at his old company, Precise Software. Namely it had a way to help businesses’ IT departments figure out why their software applications (consumer-facing websites, for example) were running slowly, and what to do about it.

“The way he’s doing it versus the industry standard is the difference between causation and correlation,” Nye says. While other companies could make educated guesses based on time stamps and which parts of the code were calling other parts, DynaTrace could pinpoint exactly “which part in the chain was causing an app to run slowly,” he says—which is tough to do in the midst of Internet-scale traffic and disparate pieces of code running in different programming languages.

Nye led Bain Capital Ventures’ $5 million Series A investment in DynaTrace and helped move the company to the Boston area in early 2007, hiring a U.S. team. The company started signing up big customers in banking, e-commerce, and retail, and its revenues more than doubled each year, reaching $26 million (and being cash-flow positive) over the past 12 months.

So why sell to Compuware now? DynaTrace didn’t need to, Nye says, adding that there was

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Author: Gregory T. Huang

Greg is a veteran journalist who has covered a wide range of science, technology, and business. As former editor in chief, he overaw daily news, features, and events across Xconomy's national network. Before joining Xconomy, he was a features editor at New Scientist magazine, where he edited and wrote articles on physics, technology, and neuroscience. Previously he was senior writer at Technology Review, where he reported on emerging technologies, R&D, and advances in computing, robotics, and applied physics. His writing has also appeared in Wired, Nature, and The Atlantic Monthly’s website. He was named a New York Times professional fellow in 2003. Greg is the co-author of Guanxi (Simon & Schuster, 2006), about Microsoft in China and the global competition for talent and technology. Before becoming a journalist, he did research at MIT’s Artificial Intelligence Lab. He has published 20 papers in scientific journals and conferences and spoken on innovation at Adobe, Amazon, eBay, Google, HP, Microsoft, Yahoo, and other organizations. He has a Master’s and Ph.D. in electrical engineering and computer science from MIT, and a B.S. in electrical engineering from the University of Illinois, Urbana-Champaign.