Serena’s sinking software revenue

Contact: Ben Kolada Scott Denne

HGGC’s purchase of Serena Software ends a challenging holding period for Silver Lake Partners, the buyout shop that took the application lifecycle management vendor private eight years ago today. Initially hampered by the 2008 financial crisis, the company’s inability to evolve its portfolio to today’s Web, mobile and cloud environments contributed to its decline. Toward the end of its time under Silver Lake, Serena was basically a maintenance shop.

Serena’s sales have shrunk from $251m in trailing revenue ahead of its take-private in 2006, to $184m in trailing sales today (the now-private company still files financials with the SEC). The largest decline came on the heels of the financial crisis, when its annual revenue dropped to $224m in the year ending January 31, 2010, from $260m a year earlier. When that crisis abated, Serena still faced declining use of mainframes (a significant revenue generator for the company), increasing use of open source software and developer-led purchases of application management products.

The company’s most recent filing period, the nine months ended October 31, shows it was becoming increasingly reliant on merely maintaining the use of its software for its customers, instead of selling new software licenses. For that period, license sales as a percent of revenue declined six percentage points, to 15% of total revenue, while its maintenance revenue increased eight percentage points, to 75% of total sales. Also under Silver Lake’s stewardship, Serena’s total debt load had nearly doubled to $410m.

Terms of the company’s sale to HGGC weren’t disclosed. Public reports peg the deal at $450m, about two-thirds less than it was taken private for. When looking at the company’s finances, that price is understandable.

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