The SolarWinds hack and private equity, First-timer Diversis exits ArrowStream, Leonard Green runs secondary on older fund

Silver Lake and Thoma Bravo get inadvertently caught up in SolarWinds hack and Diversis sells ArrowStream to Tailwind Capital.


Hack: As much as the presidential election has divided this country, we had a stark reminder this week that enemies outside our borders are on constant lookout for vulnerabilities.

That became apparent earlier this week with news that several governmental agencies and private companies were compromised in what is being described as the most significant ever cyberattack on the U.S. government.

The hackers, suspected to be Russian, waged the months-long campaign by exploiting apparently lax security in networks maintained by Texas-based SolarWinds, a public company backed by Thoma Bravo and Silver Lake.

The two firms acquired SolarWinds in 2016 in a take-private transaction valued at $4.5 billion. The firms, which own around 70 percent of SolarWinds, took the company public again in 2018.

On Dec. 7, the two firms sold shares in the company as part of a private placement process with an institutional investor that had been negotiated for some period of time (weeks or months, I’m not clear). The sale closed six days before news of the security breach went public.

According to Seeking Alpha, Silver Lake sold $158 million and Thoma Bravo sold $128 million of shares on Dec. 7.

“Thoma Bravo and Silver Lake were not aware of this potential cyberattack at SolarWinds prior to entering into a private placement to a single institutional investor on 12/7,” according to a joint statement from the firms.

Senior change: The company also reported on Dec. 7 that its CEO, Kevin Thompson, would step down effective Dec. 31 and be replaced by Sudhakar Ramakrishma, according to a filing with the SEC.

The succession process had been happening for several months and was not connected to the security breach, according to a person with knowledge of the company.
Moody’s Investors Service, meanwhile, is reviewing SolarWinds credit rating for a downgrade. The review comes as a direct result of the hacking news, which broke earlier this week.

“To the extent the cyberattack results in reputational damage, a material loss of customers, slowdown in business performance, or high remediation and legal costs, such factors could weaken SolarWinds’ credit profile,” Moody’s said.

Thoma Bravo and Silver Lake, two of the savviest tech investors in the industry, had no comment. I’m curious what is private equity’s responsibility in a situation like this. Firms take varying levels of direct control on the daily operations of companies they buy — some firms come in with a heavy hand, replace management with their own people and work to implement operational and strategic plans.

Others will buy a company with a management team they like, and allow the company to continue on its growth trajectory without too much direct interference. That was the case with the SolarWinds investment, with the two firms sticking with Thompson and his team.
How much input did the firms have in SolarWinds’ internal security and ability to protect against intrusions by malicious parties? SolarWinds customers include government agencies harboring our nation’s most sensitive security secrets — is this really a job that should get farmed out to the private sector? Reach me with your thoughts at

Emerging: Interesting deal here — Diversis Capital, a first-time manager that closed its debut fund in 2019, sold ArrowStream to Tailwind Capital. ArrowStream provides end-to-end supply chain management software for the food service industry.

Diversis closed its first fund in June 2019 on $255 million, after investing on a deal-by-deal basis since 2013. Read more about the firm here.

That’s it for me! Hit me up with thoughts, feedback, questions or especially tips — lots and lots of tips — at or find me on LinkedIn.

Note to Readers: It’s that time of year … for the 21st time, the editors of PE Hub and Buyouts honor exceptional buyouts with our Deal of the Year Awards.

Winners are chosen in seven categories: Deal of the Year, Large-Market Deal of the Year, Middle-Market Deal of the Year, Small-Market Deal of the Year, Turnaround of the Year, International Deal of the Year, and Secondaries Deal of the Year.

Go here for more information and to read about rules and methodology. Also check out past winners. Last year, New Mountain took the crown with its exit of Equian.

If you have additional questions, email Private Equity Editor Chris Witkowsky at