Five Questions with Phil Guinand, Partner, Permira

Permira recently sold enterprise cloud software company Magento to Adobe for around $1.68 billion. That was a complicated deal. How did Permira take that company from start to finish?

It was a unique product in that it had grown in a viral way. It was a phenomenon and it barely existed 10 years ago.

The carveout process was very complex. So, eBay was carving out eBay Enterprise, and within eBay Enterprise there were four different businesses. We were really focused on Magento. [But] we had to carve them all out because eBay was looking for a holistic solution.

Permira and Sterling Partners split the businesses, so it was a carveout of a carveout. On a complexity scale I’d say it was an 11 out of 10.

What were the next steps after the carveout?

After the carveout, the most important thing was developing and launching the next Magento product. That was an enterprise cloud product, which is now Magento’s flagship product offering.

At the time of the carveout, Magento had zero cloud customers. Now, more new customers than not are enterprise cloud customers.

Given the amount of capital that’s been raised by technology-focused PE firms, was there any consideration of selling to another firm?

Adobe has a whole portfolio of software solutions. It’s really a natural fit for Adobe to buy an e-commerce software platform.

There’s multiple paths an exit can go. I always assumed the highest probability and most likely outcome for Magento would be a strategic acquirer because the business had so many strategic hallmarks. The ecosystem, developers already on the product, it’s ubiquitous and well known and far-reaching.

Permira closed its most recent fund in Q4 2016 on 7.25 billion euros ($8.7 billion). As you’re putting that to work, what are some of the themes you’re thinking about?

One of the major themes, and Magento’s a good example of this, is the transition from a legacy software model to a more modern cloud-hosted model.

We have completed, or are in process with, seven companies that have done that, that have gone to SaaS or a subscription-based model, or cloud. And I think that’s something we spend a lot of time on and have had a lot of success in.

We try to look for businesses that have global ambitions, where there are maturing business models. [We look for companies where] they need to do something to get to the next stage of their life cycle and Permira can increase the odds of a great outcome.

Companies are staying private longer. A lot of those companies are massive. It’s a competitive buyer’s market. How are you navigating that? Is it harder to do deals in this climate?

The market has certainly increased its competitiveness, but we are still looking and we can still invest in businesses where we’ve found pockets of value. Everyone just has to be more thoughtful [and] spend more time.

That said, if you go back and look at how people have looked at the market for the last five years or so, even in 2014 [people said] the market was pretty frothy with peak valuations. 2015, that was the case as well. It continues for another year and again in 2017.

Calling when the market is going to weaken and when multiples will come down is a difficult thing to do. In the meantime, we’re going to keep finding good companies to invest in and attractive opportunities.

Action Item: For more on Permira, visit www.permira.com