To gain insights on the current climate for private equity deals, PE Hub and PE Hub Europe reporters have been asking a wide range of sources to share their outlooks for 2023. Our series continues now with David Breach, president and COO of Vista Equity Partners, which had a very active 2022 buying and selling enterprise software companies. Breach joined the Austin-based technology-focused firm in 2014 and served previously in roles including Chief Legal Officer. He became President in 2021.
What were the highlights of your dealmaking in 2022?
It’s fair to say we had a busy year both in terms of new acquisitions and exits. Vista was involved in several of the largest enterprise software deals of both the year and our firm’s history, including our acquisitions of Citrix, Avalara and KnowBe4.
But if you look beyond the headlines, we also generated liquidity for our investors with some incredible companies, such as Datto and Ping Identity. At the end of the day, we are in the business of value creation, so it’s gratifying as both an investor and a partner to be able to share in that growth and success.
What was the biggest challenge to completing deals in 2022?
Maintaining optionality across all of our strategies, which we worked very hard to do. This gave us the ability to move quickly to deploy capital despite challenges in the traditional debt markets. It also allowed us to demonstrate the full breadth and strength of our investment products, including our growing private credit platform.
How do you expect the first six months of PE dealmaking in 2023 to compare with the last six months of 2022?
I don’t expect the fundamental market dynamics to shift significantly. That means there will continue to be an emphasis on capital efficiency, with pockets of sector-specific activity and likely a growing class of public companies exploring the strategic benefits of pivoting to operating as sponsor-backed entities in a private setting.
Within the software market, we also expect continued platform consolidation across the industry as investors and businesses seek out inorganic avenues to drive product innovation and profitable growth.
What will be the most important trends affecting your dealmaking in 2023?
We continue to believe investing in enterprise software remains one of the best uses of capital anywhere in the financial markets. Even against the backdrop of increased uncertainty, businesses are expected to increase their IT spending, indicating that software spend is less discretionary today than it was in prior cycles. These are mission-critical tools that are often one of the last services businesses look to “turn off,” which is illustrated by the resilient retention rates we continue to see across the space. We think the public markets will continue to offer attractive opportunities to acquire great companies at reasonable valuations.
What keeps you up at night?
You can pick your favorite proverb about what it takes to successfully navigate periods of volatility. But at a high level, we believe the current environment will continue to create opportunities for discerning investors, much like past dislocations.
What will be an important theme in software investing in 2023?
Operational expertise is so much more than a talking point in software investing.
We have always taken a deep operational approach to underwriting and portfolio management. We believe we have built a highly unique and differentiated value creation function and ecosystem that allows us to partner most effectively with our portfolio companies to enhance the value of our investments on a consistent and repeatable basis, regardless of the macroeconomic environment.
This integrated approach leads to better due diligence, better underwriting and better execution. And in an uncertain economic climate, our ability to create value through operational excellence is more important than ever.