How to Invest in BMC Software

The last decade has been tumultuous for BMC Software, one of the nation’s leading information technology and enterprise software developers. In 2013, a consortium of private equity firms, including Bain Capital and Golden Gate Capital, took the publicly traded company private. It was then purchased in 2018 by global investment giant KKR (KKR 0.71%). Now, it’s planning an initial public offering (IPO) for 2024.

BMC Software was founded in 1980 by John J. Moores, a former Shell (SHEL 0.0%) programmer who built the Houston-based company up to the point where he was able to acquire Major League Baseball's San Diego Padres. The business has turned into a stalwart that competes with some of the largest information technology service management (ITSM) and consulting companies on the planet.

The company was taken private after stakeholders complained that its management had been too slow to move into cloud computing. Since then, however, it's developed a number of products designed to ease automation, development, workflow, artificial intelligence, and security applications for more than 10,000 clients, including 86% of the Forbes Global 50.

This article will cover how to invest in BMC Software, the company's upcoming IPO, and some alternatives to consider.

Is BMC publicly traded?

Is BMC Software publicly traded?

It's not. BMC was publicly traded until 2013 when it was taken private because of stakeholder concerns about its lack of progress in adapting to cloud-based computing. However, the company has filed paperwork with the Securities and Exchange Commission (SEC) to go public in 2024 and may be one of the year's more promising IPO offerings.

How to buy

How to buy BMC Software stock

Because BMC Software is owned by private equity firm KKR, you can't buy its stock directly. Accredited investors, often high-net-worth individuals, may be able to purchase pre-IPO shares on platforms such as Equity Bee and Forge Global.

Nonaccredited investors, however, must wait for the IPO. Here are three options to consider for investors interested in companies in the same line of business:

KKR

KKR (KKR 0.71%) is a global investment firm that has completed more than 690 private equity investments and has more than $500 billion in assets under management (AUM). It bought BMC Software in 2018 and lists technology as a core industry in its Americas, Europe, and Asia segments.

Known as a pioneer in leveraged buyouts (LBOs), which involve using debt to acquire companies and laying off employees, KKR has been taking minority stakes in tech and healthcare firms. KKR didn’t have a great 2022, though.

Its distributable earnings came to $3.5 billion, a 12% drop; fee-related earnings were up 10%. Shares fell 20% in 2022 as it battled a number of headwinds that afflicted the U.S. economy. Its two billionaire founders, however, claim they have a plan to double its earnings within five years.

ServiceNow

BMC Software founder Moores played a key role in arranging venture capital financing for ServiceNow (NOW 1.02%), founded in 2003. The company was named one of the most innovative U.S. companies by Forbes magazine in 2018. ServiceNow announced a partnership in May 2023 with Nvidia (NVDA 6.18%) to provide artificial intelligence (AI) services to major corporations, using company-specific data.

ServiceNow reported $7.2 billion in total revenue in 2022, marking a tripling since 2017. The company announced its first-ever share buyback in May 2023, with its board of directors authorizing the purchase of as much as $1.5 billion in shares of its common stock.

IBM

IBM (IBM -1.05%), which began life focused on punch cards, is moving into cloud computing. It’s sold off many of its secondary businesses, such as its ownership of The Weather Channel, and has become a far more streamlined company. Like many tech giants, it’s also moving into AI applications, microchip design, and quantum computing.

Investors may be encouraged by the moves. Its shares have been disappointing over the last decade -- dramatically underperforming the S&P 500 -- even when considering its high dividend yield. Still, the company’s software business has been its most attractive feature for investors lately. Software has become its most profitable revenue segment, with a gross profit margin of roughly 79%.

People who want to buy one of these alternatives to BMC Software can purchase shares in any brokerage account. Here's a step-by-step guide to investing in these stocks.

1. Open a brokerage account

You'll have to open and fund an account before buying shares of any company; here are some of the best-rated brokers and trading platforms.

2. Set your budget

Before making your first trade, you'll have to budget how much money you want to invest and how you want to allocate it. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. Dollar-cost averaging, say, 5% of every biweekly paycheck is often a good approach for beginning investors.

3. Do your homework

You should learn how any company you want to invest in makes money, its competitors, its balance sheet, and other factors to ensure you have a solid grasp on whether the company can grow value for its shareholders over the long term.

4. Place an order

The process is relatively straightforward. Go to your brokerage account's order page and fill in all the relevant information, including:

1. The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
2. The stock ticker (KKR, IBM, or NOW for ServiceNow)
3. Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the current market price.

Once you complete the order page, click to submit your trade and become a shareholder of one of these alternatives to BMC Software.

Investors would follow a similar process to buy an IPO stock, like BMC Software, when it goes public. Once shares become available, select BMC Software's chosen stock ticker to buy shares through your brokerage account. (Hint: It was traded on the Nasdaq stock exchange under the ticker "BMC" when acquired in 2013.)

Profitability

Is BMC Software profitable?

As a privately held company, BMC Software isn't required to disclose much in the way of financial information. The company, however, said its revenue in 2022 reached $2.4 billion -- smaller than ServiceNow's $12.3 billion but a respectable amount.

It's worth noting that KKR bought the company for $8.3 billion. When the investment firm notified the SEC of its plan to offer shares of the company in 2024, it estimated its market valuation at $14 billion to $15 billion. So, it's probably safe to assume the software company isn't struggling to stay afloat.

Should I invest?

Should I invest in BMC Software?

Since BMC Software isn't a publicly traded company yet, its shares aren't for sale. This isn't bad since it gives investors the time to research the company thoroughly while they await its IPO.

The research process might excite you even more about the company's prospects and increase your conviction that it's an appealing stock to buy. However, you could also discover things about the company that change your mind about buying its shares.

Here are some reasons you might want to invest in BMC Software:

• You believe cloud computing will continue to soar.
• You think BMC Software will be a strong growth stock.
• You believe BMC Software can compete with AI applications being developed by larger companies.
• You think businesses will continue to utilize the company's platform-as-a-service.
• You believe companies will need more of the services offered by BMC Software as information technology systems become ever more complex.

Of course, there are some reasons you might think this isn't the best investment for your portfolio:

• You worry that BMC Software will be overwhelmed by larger, more profitable operations.
• You're uncertain about prospects for the growth of cloud computing and AI.
• You think the information systems technology management (ISTM) field is already too crowded with larger competitors.
• You believe BMC Software's last decade -- with two takeovers -- bodes ill for its future.
• You'd prefer to invest in an information technology stock with a lengthier track record.

ETF options

ETFs with exposure to BMC Software

Since it's not publicly traded, BMC Software isn't held by any exchange-traded funds (ETFs). So, you can't get passive exposure to it. However, plenty of ETFs focus on information technology. Here are three top funds you might consider:

Vanguard Information Technology ETF

Vanguard is well-known for its low-cost index funds. The Vanguard Information Technology ETF (VGT 1.72%) certainly falls into this category, with a rock-bottom 0.10% expense ratio. This means that for every $10,000 you invest, your annual fund expenses are just $10.

The ETF tracks a broad index of U.S. tech companies of all sizes. However, it is a market-cap-weighted ETF, so its top holdings comprise a larger proportion of its assets.

The top three holdings -- Apple (AAPL -0.35%), Microsoft (MSFT 1.82%), and Nvidia (NVDA 6.18%) -- account for more than 40% of the fund's total assets, and almost 25% of the fund is made up of companies specializing in systems software. In short, the ETF is an excellent choice for investors who want a set-it-and-forget-it way to invest in the overall information technology sector.

Invesco S&P 500 Equal Weight Technology ETF

One major risk factor with many technology-related ETFs is that they're rather top-heavy. Because they are market-cap-weighted, and several blue chip tech stocks have trillion-dollar market caps, they are highly concentrated in just a few stocks.

The Invesco S&P 500 Equal Weight Technology ETF (RSPT 0.87%) aims to create a truly diversified basket of tech stocks. This ETF allocates an equal number of assets to every company in the index it tracks. In other words, a relatively small company in the index, such as Hewlett-Packard Enterprise (HPE 1.18%), gets the same exposure as a massive company, like Microsoft or Nvidia.

The 0.40% expense ratio is quite reasonable for a unique ETF like this. It could be a smart choice for investors who don't want their investment returns to be too dependent on any single company's success.

Ark Innovation ETF

The Ark Innovation ETF (ARKK 1.05%) is actively managed by well-known investor Cathie Wood and her team. Its goal is to beat the market over time, and it is designed to capitalize on innovative and rapidly growing tech companies. The fund's five largest holdings, accounting for roughly 40% of its total, are Coinbase (COIN 5.68%), Tesla (TSLA -1.11%), Zoom Video Communications (ZM 1.57%), Roku (ROKU -10.29%), and UiPath (PATH 0.26%).

The idea is to invest the fund's assets into whatever opportunities seem the most attractive at any given time. By doing so, the Ark Innovation ETF aims to beat the performance of the overall tech sector. The fund hasn't exactly been a standout performer in the market downturn. But this ETF is worth a closer look if you seek potential market-beating performance over the long run.

Related investing topics

The bottom line on BMC Software

The course of IPO stocks is notoriously hard to predict. Although BMC Software has a lengthy track record of innovation and strong performance in a very competitive sector, it faces a number of competitors in the information technology, consulting, AI, and cloud computing areas.

If you invest in a new stock, especially a tech-related business, be ready for volatility. Do your research, make sure it fits into a diversified portfolio, and never buy shares in a company you’re not prepared to hold long term.

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