TARIAN SOFTWARE: THE TROUBLE WITH TRIPLE-DIPS

Lukas Neville & Elspeth Murray, Queen’s University

Case Objectives and Use

This case demonstrates the challenges associated with new venture exits by acquisition, and underscores the impact of financing structure on founder incentives and exit opportunities.

This case is relevant for students in upper-year undergraduate or graduate courses in new venture management or new venture financing. It would naturally fall either into an early-semester discussion of deal structure, or late-term in a session on exit and harvest.

Specific objectives include:

1.  To have students confronts a high-stakes decision in the role of an entrepreneur, deciding whether to accept or reject a standstill agreement aimed at initiating an acquisition deal.

2.  To familiarize students with the elements of deal structure that have a significant impact on exit and harvest, including liquidation preferences.

3.  To introduce students to competing perspectives on acquisition goals, in particular the role of founders’ personal preferences for the company in selecting a suitor.

Case Synopsis

Tarian Software is an Ottawa company that makes software for managing electronic records. Their products allow companies to apply retention and disposal policies to files, emails and other electronic documents. Thanks to stiffened post-Enron regulatory burdens, demand for Tarian’s software is white-hot.

Three suitors, including IBM, have shown an interest in acquiring Tarian. But because of Tarian’s capitalization structure, the proceeds from a sale will be swallowed almost entirely by one investor, leaving the founder and other financiers out in the cold. Founder Bruce Miller needs to choose a suitor, and find a way for the deal to satisfy both the entrepreneurs’ and investors’ needs.

The challenge has been intensified by an ultimatum: IBM, having gotten wind of a planned meeting between Tarian and Documentum, has offered a standstill agreement and described some possible deal terms. Big Blue wants Tarian to rebuff Documentum and begin negotiations with IBM in earnest, and they’ve left Miller less than a day to respond. Miller needs to make a decision – and rally the support of his cofounder and his investors.

The authors developed the case for class discussion rather than to illustrate either effective or ineffective handling of the situation. The case, instructor’s manual, and synopsis were anonymously peer reviewed and accepted by the North American Case Research Association (NACRA) for its annual meeting, October 19-21, 2006, San Diego, CA. All rights are reserved to the authors and NACRA. © 2006 by Lukas Neville and Elspeth Murray. Contact person: Lukas Neville, Centre for Business Venturing, Queen’s School of Business, 444 Goodes Hall, 143 Union Street, Kingston, ON K7L 3E7, 613-533-6000, ext. 75957, .