Executive Buyout Will Strengthen Datatel's Steady Course

24 March 2005 Ron Yanosky
A senior-management buyout will enhance Datatel's competitiveness in the fluctuating higher-education marketplace. Customers should request specifics of Datatel's financials and its plans to make board-level changes.

Event
On 18 March 2005, Datatel, which provides higher-education technology and services, announced that its senior executive team will purchase the company from its founders, Ken Kendrick and Tom Davidson. The buyout is backed by Thoma Cressey Equity Partners and Trident Capital. The company's executive management team will remain in place; Datatel president and CEO Russ Griffith will retain both positions and will also become chairman of the board.

Analysis
This announcement eliminates concerns that Datatel, whose owners have long been retired from day-to-day operations, might be sold to an unknown entity with a radical new agenda. This is welcome news in a vertical area in which mergers and acquisitions have been common since 2000, when Jenzabar merged its student portal business with four small higher-education administrative-system providers, and continued through 1Q05, with Oracle's purchase of PeopleSoft.
Datatel has been conspicuous in its steadiness in this landscape, consistently achieving solid financials, long-term customer retention and low management turnover. The buyout will help Datatel offer new equity incentives to retain and recruit talent. Management continuity will be strengthened by agreements requiring executive team members to remain with the company for four years to receive full equity vesting. However, the buyout will not leave the company's leadership entirely unchanged. Datatel's new six-member board of directors will include, in addition to Griffith and senior vice president Vernon Hollidge, two individuals from Thoma Cressey, one from Trident Capital and one outside party.
As PeopleSoft's suite has been effectively eliminated from new administrative-system procurements, Datatel's main rivals will be SunGard SCT and Jenzabar. The buyout will strengthen Datatel's competitive position by allowing it to continue to stress stability and continuity of vision.

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