TPG, Francisco Partners go after burgeoning iPaaS market with $4bn Boomi acquisition

Boomi reflects a new trend of 'growth buyouts,' where traditional late-stage investors are prioritizing businesses with strong growth profiles over high margins in the near term.

TPG Capital and Francisco Partners see a vast opportunity behind integration platform as a service, or iPaaS, as digital adoption drives a greater need for integration technology specialists, senior investors at the firms told PE Hub.

The firms’ bet on this software vertical came earlier in May as the pair jointly acquired Boomi, a cloud-based iPaaS, from Dell Technologies.

Boomi, which is currently in growth mode, is yet to produce much profit. Nevertheless, the investors valued the carve-out at $4 billion.

According to Nehal Raj, partner at TPG Capital, and Brian Decker, partner at Francisco Partners, the iPaaS space is a $10 billion market that has growth expectations of 25 percent to 35 percent a year. Hence, backing a market leader in the sector presents an attractive opportunity to invest behind even if a company does not possess any profit metrics yet.

Boomi is viewed similarly to other recent TPG software investments including Thycotic, an identity security provider, and Greenhouse Software, a hiring software company.

According to Raj, Boomi reflects a new trend of “growth buyouts,” where traditional late-stage investors are prioritizing businesses with strong growth profiles – some of which are growing as much as 30 percent to 50 percent annually – over high margins in the near term. This is because cashflow generated is being reinvested in the company to drive that growth. While this type of deal didn’t exist a decade ago, over the past two to four years it became more prevalent in the software market, the investor explained.

“This is a great example of one of the largest growth buyouts ever done,” TPG’s Raj said. “It’s a continuation of a trend in software private equity. This is all about growth and maximizing the growth rate.”

Boomi automates communication processes between different applications within an enterprise like ERP systems, accounting or sales management, making this job accessible to any user, Raj said. In the past, these processes were done manually, producing additional expenses on labor and creating workflow inefficiencies, he explained.

“Without software like Boomi’s, developers have to code these integrations manually. This is very time-consuming and expensive, particularly when your software developers could be writing new code instead,” Raj said.

According to Raj, an average enterprise uses around 850 software applications, but fewer than 35 percent of those applications are integrated with one another. Two-thirds of all the other applications that are unintegrated need to be integrated, so this decade-long secular trend is set to benefit Boomi as a market leader, Raj said.

“It’s a great market that is levered to two major trends – the proliferation of applications in the enterprise, which is a theme we’ve been tracking for many years, and the need for data to pass between applications with greater frequency,” Raj said.

The number of applications within an enterprise is growing in the high-double-digits as software adaptation drives businesses to adapt new technologies and software solutions to integrate them, Francisco Partner’s Decker added.

“The macro driver of spending in this category is driven by the fact that the number of applications within an enterprise is growing,” Decker said. “The vast majority of these applications are not going to be standing on their own and unintegrated.”

With fresh capital from TPG and Francisco Partners, Boomi is set to achieve growth through an improved go-to-market strategy and strategic product acquisitions, Decker explained.

“We will definitely be focused on acquisitions that will be incremental from a product perspective, as opposed to simply consolidating market share,” Decker said.

“Boomi is a disruptor in the market, and we feel like we don’t need to consolidate market share, because we’d rather just take it through our go-to-market initiatives and strong product,” he added.