Two of the largest technology-focused private-equity firms are competing to raise money for what would be their biggest funds, ratcheting up an already heated race for buyouts in the industry.
Vista Equity Partners Management is attempting to raise $12 billion for its latest buyout fund, while Thoma Bravo LLC is looking for around $10 billion, according to people familiar with the matter. Vista’s effort hasn’t previously been reported.
The moves represent quick returns to the fundraising market for the firms and underscore their voracious appetites for deals.
Vista and Thoma Bravo, until recently not widely known on Wall Street, have become some of the most active and aggressive players in technology investing, in some cases competing with each other for deals.
There is no guarantee the firms will reach those targets and it is possible they will exceed them. Investors believe the funds would still likely be smaller than the $15 billion tech-focused pool that investor Silver Lake raised in 2017.
Assuming Vista and Thoma Bravo succeed in their fundraising efforts, their next challenge will be to invest all that money without further inflating the prices of tech businesses and driving down the buyout firms’ returns. Skyrocketing demand from private-equity and sovereign-wealth funds already has pushed up purchase prices sharply.
Technology has been the most popular sector for private-equity investors in recent years, accounting for 20.5%, or $79.5 billion, of all acquisitions globally in 2017, according to Dealogic. Buyers acquired controlling stakes in technology companies larger than $10 million at an average price of 23 times earnings before interest, taxes, depreciation and amortization last year, matching the 2015 peak, according to Dealogic.
Buyout firms have been drawn to technology, particularly so-called software-as-service companies, for their promise of recurring revenues, which can help support the hefty debt loads the investors tend to use to finance takeovers. Many private-equity firms have taken the companies private in an effort to help them transition from older systems to cloud-based software.
The nearly simultaneous return to fundraising mode of Thoma Bravo and Vista could force some investors who have backed both firms to go with only one, an investment consultant said.
Other investors say they believe demand is robust enough to accommodate both funds, especially given the firms’ consistent records of strong returns.
For Vista and Thoma Bravo, “the punch line is they’re both going to raise, no problem,” said Brian Gallagher, partner at Chicago-based Twin Bridge Capital Partners, which has backed prior Thoma Bravo funds. “Tech is a hot space and tech buyouts is a limited world. Only a few people do it well.”
Vista, which was founded in 2000 and manages over $31 billion, has invested in companies including educational-software provider PowerSchool Group LLC and data-analytics provider TIBCO Software Inc. The Austin, Texas, firm just closed an $11 billion-plus fund last year. A 2014 Vista fund delivered roughly 1.25 times invested capital as of December 2017, according to pension data and research firms. The result doesn’t include a recent deal to sell part of its stake in PowerSchool, which is expected to generate nearly four times invested capital.
Vista, which focuses exclusively on software, employs over 200 people. About half of them are part of a consulting arm that works to improve operations at businesses the firm owns. In recent years, Vista has expanded beyond its core buyout funds into other strategies, including small-cap deals and credit. The firm has also set its sights on a fund with a longer life span than traditional private-equity deals.
Thoma Bravo, with more than $21 billion in assets, has invested in cloud-security business Barracuda Networks Inc. and cybersecurity firm SailPoint Technologies Holdings Inc.
Thoma Bravo, which has offices in Chicago and San Francisco, raised $7.6 billion for its prior flagship fund in late 2016. Its 2014 fund delivered 1.58 times invested capital as of December 2017, according to pension-fund data.
Thoma Bravo invests more broadly, and besides software focuses on technology-enabled services. The firm, which has 85 employees and operating executives, has expanded into funds that invest in smaller deals too.
Vista evaluated close to 4,000 potential companies in the past three years, of which it ran into Thoma Bravo an estimated 300 times, especially at the larger end of the market, a person familiar with the matter said.
—Laura Kreutzer contributed to this article.