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Robert F. Smith, Chairman and Chief Executive Officer, Vista Equity Partners
Tim Green

Private Equity Firms Raise Big Acquisition Funds

by Tim Green | Dun & Bradstreet Editor

January 9, 2017 | No Comments »

Technology companies in migration mode to the cloud might expect a knock at the door sometime soon. The ones who knock might be two private equity firms that have raised billions of dollars to buy such companies.

Vista Equity Partners had already raised $10 billion for its sixth fund when it went back to investors for permission to raise even more money, according to The Wall Street Journal. The investors said OK, and Vista sought $500 million to top off the fund. In the fall, another private equity firm, Thoma Bravo, said it raised $7.6 billion for its latest fund.

Vista and Thoma Bravo are two of the more aggressive acquirers of software companies struggling to make the transition to cloud-based products. It takes time to make the technology leap, and the switch to a subscription-based revenue model can put a dent in revenue, at least for the short term.

The adoption of cloud-based computing, running computer programs on remote servers over the internet, and the changes that follow in its wake have bedeviled companies big and small. Giants such as IBM, Oracle, and others are in the process of changing product mixes and business models to adapt to the changing environment.

Smaller companies often don’t have the resources that effectively make the transition nor can they ask for much investor patience while they try.

That’s why private equity firms like Vista, Thoma Bravo, and others might be at the door.

They can deploy their large investment funds to buy software companies (including those in security, networking, and enterprise applications) and take them private. Then they plow money into technology and personnel to make the companies competitive in the new market. Not having to meet quarterly investor expectations gives the companies more flexibility as they retool.

Here’s how it can work: In 2013 Thoma Bravo bought Blue Coat Systems, a developer of IT security software, for $1.3 billion. Thoma Bravo invested additional capital in Blue Coat that helped build out its cloud infrastructure and make several acquisitions. The investor then sold Blue Coat to Bain Capital, another private equity player, for $2.4 billion in 2015. In 2016 Bain planned to spin Blue Coat out in a public stock offering. But before the IPO could get off the ground, Symantec, the large IT security firm, stepped in and bought Blue Coat for $4.6 billion.

The private equity firms expect their deal count to increase as movement to the cloud accelerates.

“Partnering with private equity and managing that disruptive business shift as a private company will continue to be appealing to management teams, and we expect the take-private deal volume to increase considerably,” Orlando Bravo, a managing partner at Thoma Bravo told the Journal.

Not that the pace of deals has been slow.

Thoma Bravo made at least eight acquisitions in 2016 while selling four companies. Companies it bought include Qlik, Imprivata, and SolarWinds (in partnership with Silver Lake Partners). Sales included Deltek to Roper and Mediware to TPG Capital, another private equity firm.

Vista completed nine acquisitions during the year, but made no sales. The deals included Infoblox, Marketo, Ping Identity, and Solera. It also bought the Sungard public and education sector business from FIS.

In their quest for information technology companies, Vista and Thoma Bravo might need the large funds they’ve raised if 2017 follows the pattern of 2016. IT companies fetched premium prices in 2016, accounting for 30% of overall deal value while they were just 17% of the total number of deals, according to Preqin Ltd., a research firm. Public-to-private deals also seemed more expensive, accounting for 18% of deal value, but just 2% of the total deals done in 2016.

Besides vying with each other for deals, Vista and Thoma Bravo compete for deals with firms such as Silver Lake Partners, Platinum Equity, Apollo Global Management, KKR, Apax Partners, and others.

So that knock you hear? It’s not a joke.

Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.

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Photo by Jolanda Flubacher, courtesy of the World Economic Forum, used here under a Creative Commons license.

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