Large buyouts are beating strategics in software M&A

Large buyouts are the new exit for software companies. Mega private equity firms have become more aggressive in deals and, at times, are beating strategics to buy them, executives at Data Disrupt said.

Ten years ago, the highlight for a company was to trade in a sale to a strategic acquirer or go public, said Todd MacLean, co-founder of Silversmith Capital Partners and a managing partner.

The proliferation of big buyouts is creating a “layer” of exit choices, he said. “Now if you don’t want to go public, there is an option to stay private,” MacLean said.

MacLean added that he was “amazed by the prices some of the larger funds are paying for larger software data companies.”

Chris Mitchell, a managing director of Spectrum Equity, agreed that five to 10 years ago most exits were sales to strategic acquirers. “Buyouts are able to compete with strategics on price today,” Mitchell said. The activity has created a “much richer exit environment for most of our companies,” he added.

Both MacLean and Mitchell appeared May 23 at Data Disrupt, a financial-services data-analytics conference held at Columbia University. The executives spoke on the panel “VC/PE Perspectives – A Lay of the Land.”

Scott Feldman, a managing director of Susquehanna Growth Equity who also spoke on the panel, said scarcity is driving some deals. Not many companies generate $75 million Ebitda, Feldman said. These companies can command multiples that are “through the roof,” he said.

By comparison, there are a “zillion funds that can invest in a $75 million Ebitda company because they have to invest money,” said Feldman, referring to the rich coffers of PE firms.

PE and VC funds globally are sitting on more than $1 trillion in committed capital, PitchBook said in March. Leverage also remains very plentiful, Spectrum’s Mitchell said.

Asked which buyout shops were active, the executives pointed to Vista Equity PartnersThoma BravoKKRFrancisco Partners and Permira.

They also mentioned TA Associates and Summit Partners, both growth funds, which have done several deals.

Vista this month said it was adding QuickMobile while in April it announced buys of Allocate SoftwareLogic Monitor and YouEarnedIt.

The buyout activity is “net-net good” for companies because it “gives them more choices,” MacLean said. For growth firms, such transactions provide an opportunity for liquidity rather than “force a company into an outcome,” he said.

Action Item: Contact Todd MacLean at +1 617-670-4300

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