Buyout firm Thoma Bravo builds war chest for software companies


NS The mood was buoyant When private equity executives gathered at the Super Return Conference in Berlin last month. But Billionaire’s Orlando Bravo, co-founder of software acquisition company Tohma Bravo, stood out in his vibrancy.

“One of the questions we are always asked is when the party will end,” Bravo said. But the analogy was wrong, he said. Because the party has a “finite end”.

According to Refinitiv, the private-equity industry has begun to move with record buyouts of over $ 1 trillion this year, and Thomas Bravo is helping to set the pace. The US-based company has closed six billion-dollar public companies privately over the past year, according to PitchBook data.

Its biggest deals, the $ 10.2 billion acquisition of real estate software company RealPage in April and the $ 12.3 billion acquisition of cybersecurity company Proofpoint in August, are substantial $ 22.8 billion raised by the company from investors. It was part of a takeover fuss that invested everything in. Less than 14 months ago.

At a private meeting in Berlin, a representative of Tohma Bravo outlined a funding effort that would bring $ 35 billion, according to those who are directly aware of the issue. The fastest-growing asset of all major buyout companies is $ 91 billion, surpassing the $ 88 billion of private equity giant Blackstone, which was unveiled in 2007. Tohma Bravo declined to comment on the funding plan.

“Now it’s no different. Orlando Bravo tells the Financial Times that there are more opportunities to invest in software, just add more zeros and then zeros.

The rise of Thomas Bravo from niche investors, whose wealth was only billions of dollars a decade ago, is contrary to most industry practices.

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Headed by Bravo and a group of close management partners, the company has been doing nothing but acquiring a software company for nearly 20 years. The focus is in contrast to the listed rivals such as Blackstone and KKR. Vast business It looks more like a private equity firm than an asset management company.

Software ratings have skyrocketed, but Bravo said he wasn’t upset. Since the beginning of 2020, his company has closed more than 20 software investments through sales or initial public offerings, generating $ 29 billion in profits from $ 7 billion in investment capital, according to people informed about the issue. rice field.

After investing $ 2.2 billion in mortgage software company Ellie Mae in 2019 $ 11 billion plunge According to disclosures from several state-owned pension funds, the internal rate of return of the fund rose to more than 50% in 2018 when the business was sold to the Intercontinental Exchange a year later.

These return the optimism of Color Bravo. “It’s amazing to me that people are out there and the market is overvalued. It’s almost irresponsible,” he said. “Sit in cash and wait for the market to get cheaper.”

Originally from Mayagueez, Puerto Rico, Bravo, 51, moved to Rhode Island in the late 1980s to study and play for the Brown University tennis team. He then worked at Morgan Stanley and earned a Bachelor of Business and Law degree from Stanford University.

In 1998, he was hired by deal maker Karl Tohma and sent to San Francisco to invest in technology when the dot-com bubble peaked. His first two investments were losers, but Bravo moved forward with a focus on professional software companies that he believed were undervalued. In 2008, the company was renamed Thomas Bravo because it focused solely on software.

Thoma Bravo aims to buy the software business with loyal customers, but it may be out of strategy or slowing sales growth. The company seeks to maintain management and advise on raising subscription prices, restructuring sales incentives, dumping businesses with financial losses, and more.

David Scudellari, Head of Private Equity and Credit for PSP Investments, said: A Canadian pension fund with over $ 200 billion in assets.

This approach contrasts with competitor Vista Equity Partners, led by billionaire Robert Smith. Thoma Bravo’s assets outnumbered Vista’s.

Thoma Bravo’s transactions still include layoffs (often 10% or more of staff) and outsourcing, shifting operations to countries with lower labor costs.

For the education technology company Instructure, this strategy eliminated work and reduced sales incentives. To reduce more expensive workers, Instructure has hired hundreds of IT employees in Budapest.

Toma Bravo returns

Morale suffered. Steve Daly, Chief Executive Officer of Instructure, said: However, the company, which went public in 2020 and relisted in July, reported a 62% year-on-year increase in gross profit for the most recent quarter.

“We’ve made investors say,’This was the infrastructure we’ve always been thinking about,’” said Daily. Toma Bravo’s $ 1 billion equity investment is currently worth $ 2.6 billion.

Some Instructure shareholders complained that the board sold the company to Thomas Bravo at a low price. Praesidium Investment Management, the largest shareholder, Called The sales process is “hurry” and “full of conflicts of interest.”

As valuations soar, investment banks and private credit funds are willing to lend at once with unprecedented debt ratios, as Tohma Bravo’s model grows in leverage.

“Multiple purchase prices over a decade ago were much lower than multiples of leverage,” said Kippde Veer, head of Ares Credit, one of the company’s lenders. “”[You’re] These businesses are producers and have proven to be aperiodic, resulting in huge purchase prices. “

Bankers involved in the recent Tohma Bravo transaction have adjusted interest, taxes, depreciation and pre-amortization gains as lenders capitalize the company’s future subscription income and reduce reported leverage by approximately seven times. He said he was underwritten at a rate of 15 times the debt to.

Toma Bravo also faces new risks. The acquisition of RealPage and Proofpoint required more than $ 15 billion in equity. This is about 70% of the total value. “A larger equity check is inevitably needed,” says the banker. “The bond market can’t offer much.”

Orlando Bravo said some of the transactions were syndicated to existing investors such as pensions and sovereign wealth funds. This move will reduce the concentration of single investments in the fund.

Some investments will fail.When the huge Riverbed Technology of network infrastructure applied bankruptcy Last month, it wiped out most of the investors, including the $ 1.4 billion Toma Bravo and the Ontario Teachers’ Pension Plan. “We underestimated the rate of technological change on the networking side of our business,” Bravo said of the transaction. “Sometimes we make mistakes.”

Texas-based cybersecurity company SolarWinds hacking Last year, the software was used to spy on governments and businesses. Thoma Bravo acquired a private company with Silver Lake for $ 4.5 billion in 2016 and relisted in 2018.

In a subsequent shareholder proceeding against SolarWinds, one proceeding focused on offshoring and cost savings carried out by private equity backers, but did not appoint them as defendants. A Thomas Bravo partner of SolarWinds’ board of directors declined to comment on the situation.

Experience has not caused Bravo to become defensive.

“Optimism has negative implications and we consider it naive or diligent,” he says. “For 25 years, very smart people have called me and gave me a great explanation of why they didn’t make a particular deal. I’ll multiply it later, but that’s it. There is nothing to show, “he adds.

Bravo’s bullishness extends to his own company, which has no outside investors, whether it goes public or sells a minority stake in another private equity fund.

“We take great care not to do it just because someone else is doing it,” Bravo said. “All of these transactions significantly underestimate these companies.”

Additional report by Kaye Wiggins in Berlin

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