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Borland has decided to keep its tools business in the company fold, spinning off a wholly owned subsidiary known as CodeGear.
eWEEK senior editor Darryl K. Taft spoke with Borland CEO Tod Nielsen and the CEO of CodeGear, Ben Smith.
Why no sale?
Nielsen: After a pretty lengthy and complex process that involved several serious bidders, I determined this was the best plan for shareholders, customers, the developer community and employees.
When we first announced our intent to sell the IDE products back in February, I made it pretty clear what we were looking for the right owner for this group: someone who would be committed to serving our developer community, someone who would continue product innovation, and someone who would offer a sum that matched the value of the business.
The challenge came when we went about separating the two businesses—which have been interlinked for over 23 years—we found that we werent able to adequately separate the financials in a way that demonstrated what we believe to be the true value of these products.
So, we reassessed and decided that it made the most sense for Borland to be the owner and to spin this off as a separate, independent subsidiary.
Although this wasnt our original plan, I think were accomplishing what we set out to do—separating these two businesses so they each can thrive.
Next Page: “A matter of focus.”
A Matter of Focus
What kinds of offers did you get?
Nielsen: There was certainly no lack of interest from potential investors—both other vendors and from the private equity and VC community. We had at least five serious bidders who were involved in the due diligence process. Unfortunately, I cant say much more than that given confidentiality agreements.
How does this move prepare Borland to better go after the Application Lifecycle Management market?
Nielsen: Very well. Its really a matter of focus. By forming CodeGear as a separate independent business—with its own brand, management team, board, operating structure and so on—it gives Borland the ability to focus on and accelerate the significant progress were already seeing in ALM.
I dont think theres one person who will split time now between Borland and CodeGear once the separation is complete later this year.
That kind of singular focus goes a long way, and people internally are really jazzed about the opportunities ahead for both groups.
If you look at the ALM revenue growth we announced today—90 percent annual growth from Q3 last year—I think that shows you what we can do even amidst an enormous amount of change.
Explain the relationship between the two entities?
Nielsen: Borland will own CodeGear from a legal and financial standpoint, but for all intents and purposes these are going to be run as two separate companies.
CodeGear will now have its own brand, its own management team, its R&D organization, its own sales and marketing strategy, you get the picture.
I look at it kind of like the relationship between Filemaker and Apple. Although Filemaker is a wholly owned subsidiary of Apple, they are very much a separate company with a separate brand.
We will continue to work closely though when it comes to serving our customers. We will absolutely continue to move forward on the integrations that exist between CodeGears IDE and Borlands ALM products.
These integrations add value to both product lines and we dont intend to lose that value. And at the same time, we may also seek other relevant integrations that our customers want.
For example, CodeGear may choose to integrate with open source products where we may choose to tighten integrations with both open source frameworks and other IDEs such as Visual Studio.
Geared Up
Why are you geared up about this news?
Nielsen: For a lot of reasons. Because of the clarity this now provides to employees and customers; because of the focus that Borland now has to dominate the ALM market; because of the separate brand and independent structure that will allow CodeGear to thrive and continue innovating in the area of developer productivity.
This is the culmination of nine months of hard work from both teams. Everyone has put a lot of time and energy into forming and refining the structure, teams and plans that are going to let us both capitalize on two distinct business opportunities. I think everyone is looking forward to the next chapter.
What would you say to the naysayers? Folks who say you just couldnt get the selling price you wanted, or that you never planned to sell in the first place.
Nielsen: To the naysayers on our ALM side, Id say just look at our ALM numbers. That pretty much says it all. We saw a 90 percent annual increase in our ALM revenue numbers from Q3 to Q3.
ALM license revenue is up 117 percent, and weve seen strong sequential double digit growth in ALM license revenue each of the past three quarters.
For the naysayers on the IDE side, Id say we did probably underestimate the complexity of separating a business that has been an integral part of Borland for 23 years. But I think, although this wasnt our original plan, we are accomplishing what we set out to do and our customers will be pleased. Were creating two independent businesses, allowing the CodeGear team to fly, be free and keep innovating.
Can you identify any of the suitors? What was the highest bid?
Nielsen: These we cant answer—too many confidentiality agreements that were signed and put in place during the process.
How many potential buyers were there?
Nielsen: We had a number of interested parties, but we narrowed it down to at least five serious bidders who were involved in the due diligence process.
How does Borland assess the value of DevCo or now CodeGear? Is there a figure?
Nielsen: We arent going to project future values, but we will be breaking out the revenue figures for the IDE business on todays earnings call. In Q3, the IDE revenues were approximately $15 million. In fiscal year 2005, IDE revenues were approximately $90 million.
How do you plan to grow the business?
Smith: I think there are a lot of untapped opportunities to do what weve done so many times in the past—to bring RAD [rapid application development] development capabilities to new audiences, helping developers to be as productive as possible and to more effectively compete with their neighbors.
This is a growing community. Evans Data recently published a report predicting the developer population to grow 46 percent by 2009. Thats over 17 million developers globally.
There is a rich opportunity for CodeGear to develop products that target these new users and to further take advantage of the emergence of Web services and new development capabilities like Ruby, Python and AJAX [Asynchronous JavaScript and XML].
There are also some significant opportunities to embrace and build on top of open source, like what were doing with Peloton, the next version of JBuilder which will be out later this year and brings the RAD capabilities of JBuilder to the large Eclipse community.
Was the decision not to sell to a separate company the right one?
Smith: I was a part of the decision with Tod to create a separate subsidiary. And yes, I think this was the best decision in terms of what it offers to Borland shareholders and CodeGear employees and customers.
Our goal is to focus on building the CodeGear brand, creating a successful independent operation, and providing a structure that will let this very talented team continue to serve that growing developer community we talked about.
Ive spent a lot of time with these guys, folks like Michael Swindell [vice president of product strategy], David [David Intersimone, vice president of developer relations] and Allen Bauer [chief technology officer]. I think theres still a lot of innovation left in Allen Bauers head that we havent yet tapped.
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