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Meet private equity’s king of SaaS

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How Thoma Bravo became private equity

“Software is eating the world,” venture capitalist Marc Andreessen presciently stated in 2011. It’s eating private equity, too.

In the red-hot buyout industry, which has struck a record $1tn-plus in deals in 2021, takeovers of software companies have become a perennial gold mine for dealmakers.

None more so than US-based Thoma Bravo. The firm, co-founded by billionaires Orlando Bravo and Carl Thoma, has morphed from a niche player with just $3.6bn in assets into a powerhouse with over $91bn under management in the span of a decade.

As DD’s Antoine Gara and Kaye Wiggins report, Thoma Bravo is now aiming to raise $35bn, just over a year after it closed $22.8bn in fundraising.

The eye-opening numbers are the result of Bravo’s bullishness on the software sector, even as valuations skyrocket industry-wide.

“We’re doing nothing different now than we used to. It’s just, add another zero, and then another zero,” Orlando Bravo told the FT.

Over the past year, the private equity firm has taken six multi-billion-dollar public companies private, led by the $10.2bn buyout of real estate software company RealPage in April and the $12.3bn buyout of cyber security firm Proofpoint in August, making it the most active public-to-private buyout investor globally.

Orlando Bravo, co-founder of Thoma Bravo
Orlando Bravo, co-founder of Thoma Bravo, said he was unfazed by soaring software sector valuations © Jason Henry/FT

To get deals done, Thoma Bravo has stiff competition.

In addition to rival Vista Equity Partners (which it is now larger than), players including Permira Advisers, Hellman & Friedman, TPG and Advent International have recently scored big software windfalls and won megadeals such as McAfee and Athenahealth.

Winning a software deal now means paying ever-higher prices that require greater amounts of debt. Thoma Bravo needed more than $15bn in equity to pull off its buyouts of RealPage and Proofpoint — roughly 70 per cent of the overall value.

“The bigger equity cheque is somewhat by necessity,” said one investment banker. “There’s only so much the debt market can provide.”

Thoma Bravo returns

Orlando Bravo is no shrinking violet when it comes to sceptics. “It’s amazing to me that people get out there and say the market is overvalued. It is irresponsible, almost,” he said. “Good luck in sitting on cash and waiting for the market to get cheap.”

His bullishness extends to his own firm, which has no outside investors even as other private equity firms go public or sell minority stakes.

“We are very careful not to do things just because other people are doing it,” he said. “All of these deals undervalue these firms massively.”

Elliott finds quick wins hard to come by in the UK 

Elliott Management is so formidable that its mere arrival can bend a multibillion-dollar company to its will. At least that’s what a Twitter shareholder claimed in court, when the hedge fund shook up its boardroom to little resistance.

Jack Dorsey’s departure from the social media group last week, egged on by Elliott’s managing partner Jesse Cohn, twisted the knife even further.

But for all its successful coups from Wall Street to Silicon Valley, the notorious activist’s Trojan horse hasn’t left the same impression across the Atlantic.

When Paul Singer’s troops took their campaign against energy group SSE public on Tuesday, the impact was muted.

Shares in the energy group dropped 1.5 per cent following Elliott’s declaration that the company’s longstanding chief executive Alistair Phillips-Davies had widely underperformed during his eight-year tenure.

Elliott argued that the board’s decision to reject its call for a spin-off in favour of boosting investment in renewables represented “a missed opportunity”.

Alistair Phillips-Davies, SSE chief executive
Elliott has criticised the performance of Alistair Phillips-Davies, SSE chief executive © Bloomberg

It also faced pushback from Royal London Asset Management, one of SSE’s biggest shareholders, which said Elliott’s spin-off plan would be bad for shareholders and inhibit the UK’s path to net zero emissions.

Elliott, whose stake in SSE was reported in September, is hoping that its demands to appoint two new independent directors to the UK company’s board may finally tip the scales towards the break-up it has been angling for.

The SSE campaign isn’t Elliott’s only slow-moving effort in the UK. Its attempted shake-up at Brentford-based healthcare group GlaxoSmithKline was blocked by the company’s board, which rejected Elliott’s demands to appoint new directors and re-evaluate whether chief executive Emma Walmsley should remain at the helm.

Elliott’s Paul Singer and GlaxoSmithKline chief executive Emma Walmsley
Elliott’s Paul Singer and GlaxoSmithKline chief executive Emma Walmsley © FT montage; Bloomberg, Reuters

In lieu of short-term wins, the FT’s Cat Rutter Pooley argues that Elliott now has time on its side in its SSE campaign.

British companies don’t necessarily respond to aggressive tactics the way their American peers do.

Case in point: Elliott’s 2018 victory at hotel and restaurant multinational Whitbread, when the activist used an — albeit uncharacteristic — gentle approach to get its way and spin off the group’s Costa café chain.

After stomaching an initial defeat at SSE, its break-up plan thwarted, Elliott could be invoking a different strategy.

In criticising the review process behind SSE’s decision to stick with renewables, which it described on Tuesday as “opaque” and “deeply flawed”, Elliott is sowing the seeds for a debate over SSE’s governance that is more likely to galvanise shareholders than a scrap over M&A.

Intel attempts a value reboot

Few chief executives have more on their plate than Pat Gelsinger, who was named chief executive of Intel in January.

His task is to revive America’s best-known chipmaker following years of stock market underperformance and while a global semiconductor shortage rages. Complicating the task further are the dual threats of rival Nvidia, and activist shareholder Daniel Loeb of Third Point.

Whether Gelsinger succeeds almost rises to an issue of national importance, given the strategic nature of the semiconductor industry, particularly at a time when China poses a threat to manufacturers like Taiwan Semiconductor.

This week the Intel boss made his first big move, announcing the proposed spin-off of automotive sensor pioneer Mobileye, the FT’s Richard Waters reports.

Amnon Shashua, Mobileye’s chief executive, poses with a driverless vehicle at the Nasdaq in New York
Amnon Shashua, Mobileye’s chief executive, poses with a driverless vehicle at the Nasdaq in New York © Reuters

At a reported $50bn valuation, a spin-off of Mobileye could solve many problems for Intel, which acquired the business for $15.3bn in 2017.

Lex notes the manoeuvre will help Gelsinger raise billions in new funds for high capital spending needs as Intel tries to revitalise its core chip business.

Before Intel, Gelsinger led cloud software group VMware for nearly a decade, managing it as an independent division of ailing tech conglomerate EMC Corporation. Early in his tenure, it faced an activist threat from activist Elliott, then became the critical asset in Dell Technologies’ $67bn takeover of EMC in 2016.

Gelsinger stayed on at VMware and successfully maintained its growth for years, striking savvy partnerships with large cloud providers, while Dell mined its balance sheet for billions in cash, and then ultimately freed the business this November.

In short, it’s not far off from what Intel now plans to do with Mobileye.

Job moves

Doug Parker
Doug Parker © Bloomberg
  • Doug Parker will retire as chief executive of American Airlines on March 31. He will be succeeded by Robert Isom, the airline’s current president. Parker will continue to serve as chair of American’s board.

  • The Canada Pension Plan Investment Board has promoted Maximilian Biagosch to senior managing director, Europe regional head and head of direct private equity, and Agus Tandiono to senior managing director, Asia regional head and head of fundamental equities Asia.

  • Four months after being released from prison, Samsung’s third-generation heir Lee Jae-yong is taking a more active role in the company by reshuffling management: Han Jong-hee, head of Samsung’s visual display business, has been promoted to run the newly merged consumer electronics and mobile divisions; Kyung Kye-hyun, chief of affiliate Samsung Electro-Mechanics, will head the chip business.

  • Walt Disney has named BP’s vice-president of communications advocacy Geoff Morrell to the newly created role of chief corporate affairs officer.

  • Joel Bamford is stepping down as senior director of the UK Competition and Markets Authority’s mergers division to join Fingleton’s M&A advisory practice early next year.

Smart reads 

Mad money A $1.3tn Vanguard fund has dwarfed its competitors. The index it’s tied to — the unassuming CRSP US Total Market Index — could now be considered a third stock market in itself. (Wall Street Journal)

Demolition phase With little political motivation to salvage Evergrande, Chinese officials must find a way to unwind the debt-ridden real estate developer without risking contagion in the broader property market. (FT)

The art of the deal Donald Trump’s new media Spac venture will enable the former US president to push his own agenda in the public arena without the scrutiny that comes with running a campaign, and make a profit in the process. (Reuters)

News round-up

Evergrande bondholders yet to be paid as crucial debt deadline passes (FT)

Liontrust strikes deal to buy Majedie Asset Management (FT)

Saudi Aramco/BlackRock: pipeline deal shows kingdom is open to FDI (Lex)

Veritas explores sale of health-IT firm Cotiviti (Bloomberg)

Deutsche Bahn’s auditor not fully informed on whistleblower complaint (FT)

UK watchdog threatens in-depth probe of Veolia’s takeover of Suez (FT)

French police arrest Saudi national over killing of Khashoggi (FT)

Lloyd’s List to chart new course as Informa hoists ‘for sale’ sign (FT)

UK network operators under scrutiny over Storm Arwen outages (FT)

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