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Big FalconStor Software stake bought by private equity firm

ESW Capital LLC has taken a 6.4 million

ESW Capital LLC has taken a 6.4 million share investment in FalconStor Software of Melville, seen in November 2011. Photo Credit: Steve Pfost

An Austin, Texas, private equity firm with ties to FalconStor Software Inc.’s new chief executive and a track record of acquiring software businesses has taken a 14.4 percent stake in the Melville company, according to government documents filed Monday.

The 6.4 million share investment by ESW Capital LLC, worth about $2 million as of Monday’s market close, makes the Texas company the largest investor in FalconStor. ESW now has more than twice as many shares as the 2.8 million owned by Darien, Connecticut, hedge fund Nantahala Capital Management.

FalconStor stock fell 11.1 percent to close at 32 cents Monday on the Nasdaq Capital Market. But the stock was up 77.8 percent since FalconStor’s board announced after the market closed Aug. 17 that it had appointed Todd Brooks as CEO.

On Tuesday, the shares rose 3.6 percent to close at 33 cents.

Calls and emails to Brooks and ESW were not immediately returned.

The 23-year-old data-storage software company has grappled with declining sales, and a delisting notice from Nasdaq in November for failing to meet the stock market’s requirements. In response, FalconStor has sought to cut costs, revive growth and return to compliance with Nasdaq regulations.

From 2006 to 2016, Brooks was an executive at companies affiliated with ESW, according to his LinkedIn profile. In August 2016, he became an operating partner at Razorhorse Capital, an Atlanta investment firm.

Todd Oseth, a former president and chief executive of Denver-based Intermap Technologies, served as FalconStor chief executive for less than two months before he was replaced by Brooks on Aug. 17. The company announcement said that Oseth moved into a “strategic industry adviser role.”

ESW’s website said the firm focuses on business software companies and it has made more than 50 acquisitions.

“We bid most aggressively for those companies with long tenured customers, even if they have unattractive growth rates and/or earnings history,” the website said.

Many private equity investors seek to acquire companies, streamline operations and sell them after a few years. But ESW calls itself a long-term investor.

“Our Model: Buy, strengthen, and grow business software companies,” the company’s website says. “We don’t sell assets — we run companies for the long term.”

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