TPG has introduced Digital.ai, a provider of developer and operations tools that will seek to stand out through the integration of its software offerings, Nehal Raj, a partner at TPG, told PE Hub.
Digital.ai will be formed through the combination of TPG-backed CollabNet VersionOne, XebiaLabs and newly acquired Arxan Technologies. TPG’s Digital.ai announced its acquisition of Arxan from TA Associates on Wednesday.
The three companies serve software developers in different aspects of their work – CollabNet in planning, XebiaLabs in software release and Arxan in security.
Digital.ai joins a fragmented market. Across DevOps, there are a number of players providing niche, non-integrated technology tools, Raj said. At the same time, CIOs of large companies want to deal with fewer vendors and have more strategic consistency between the tools that their developers have to use, the investor said.
The idea behind Digital.ai was to create a unified company offering a complementary set of tools for software developers under one brand, Raj said.
“Today, each of those areas – planning, release, security – are all served by different vendors who loosely integrate with each other,” Raj said. “From an investment standpoint, there is a bigger opportunity to take these best-in-class tools that are siloed and put [them] together in a very strategic integrated way. And then, sell the integrated suite into the market that comprises now [of] three different tools – but probably over time, five to six different tools – that work together in a seamless way as one product.”
Digital.ai’s roots date to September, when TPG Capital acquired CollabNet VersionOne from Vector Capital. In January, CollabNet VersionOne was merged with XebiaLabs. The platform became Digital.ai Wednesday, when TPG combined the companies with Arxan, a company purchased from TA Associates.
TPG in January also brought in Ashok Reddy to manage the new company as CEO. Reddy previously served as senior vice president and general manager of the enterprise software division at Broadcom, helping the tech company create and lead the first multi-billion dollar distributed software unit.
“We felt really strongly that bringing an outside CEO with significant domain experience at a large-scale company was key in making the combined company successful,” Raj said. “Without him these next steps wouldn’t have come together.”
TPG and the combined company intends to grow Digital.ai further in order to incorporate other elements needed for software development, Raj said.
For instance, they are evaluating opportunities in software testing, which allow developers to make sure the codes they write actually work.
“We want to figure out if we want to buy or partner with a third-party provider for testing. But this would be a logical step for the company to get into,” Raj said.
Digital.ai also aligns with TPG’s thesis of backing digital transformation.
The more non-tech corporations seek to own their software, rather than partnering with a third-party developer to write it, the more customer demand DevOps platforms are poised to see, Raj said.
“Everywhere we look there [are] non-tech companies that [need] to incorporate software into their broader workflows, Raj said.
These companies are using software to reach customers and manage business processes in a way they hadn’t before, he explained: “[These non-tech companies] are hiring big teams of developers and these teams are writing software on proprietary basis for these large companies.”
Some of Digital.ai’s customers include ABN AMRO Bank, KeyBank, KLM and Air France, Siemens and Toyota.
The DevOps landscape
TPG is not the only firm that sees opportunity in DevOps investing.
Digital.ai plays in a similar market as Perforce Software, backed by Clearlake and Francisco Partners, and Idera, backed by TA Associates, HGGC and Partners Group.
Both Perforce and Idera have grown through multiple add-on acquisitions and both offer a set of complementary developer tools.
Digital.ai will have a similar growth path and end-market, but will stand out, Raj said.
“We wanted to do something very different,” Raj said. “We wanted to create something that has a lot of strategic consistency and we wanted to create one company: one sales team, one development team, one management team, one go-to-market motion and under one brand. And to me, this is really unique and differentiated in the space, and what customers are looking for.”
TPG doesn’t expect covid-19 to affect the business in any major way, Raj said.
Digital.ai’s business is fully driven by subscription-based recurring revenue and the company has a high customer retention rate. That means that even with fewer new sales occurring, the company’s revenue is projected to grow, the investor said.
Digital.ai expects to produce “solid double-digit growth,” Raj said.
Moelis represented Arxan on its sale to Digital.ai. Evercore represented Digital.ai.
Action Item: See TPG’s recent form ADV here.
Correction: This story has been updated to reflect the correct spelling of CollabNet VersionOne and clarify one of Raj’s quotes.