Tuesday, May 7, 2013

Investopedia: BMC Software Shows Again That Getting Full Value Is Tough Without Growth

It's hard to call the last few years a nightmare for BMC Software (Nasdaq:BMC) shareholders, but dishwater-gray mediocrity doesn't seem so unfair. Against a nearly 20% return from the Nasdaq, BMC has actually declined about 10% over the past two years (though up almost 30% over five years, and closer to the Nasdaq return), and has trailed peers/comps like CA (NYSE:CA), Compuware (Nasdaq:CPWR), and ServiceNow (NYSE:NOW) by a meaningful margin too.

The problem here is one that I've lamented before in the tech sector. Although BMC converts a sizable percentage of its revenue into free cash flow (FCF) and sports solid margins and returns on capital, the company's growth has been lackluster due to an inability to change with the times and establish competitive positions in new markets.

Now the story seems to be all but over for BMC as a publicly-traded company. A consortium of private equity investors has put together a bid that gives investors only a modest premium over the 200-day moving average and would seem to undervalue the company's long-term cash streams. And yet, this very well may be the best deal that investors can hope for and a warning to investors in other cash-rich/growth-poor stories.

Please read the full article here:

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