Orlando Bravo: $7.6 bln fundraise ‘bigger, faster, better’

  • Fund XII to tackle larger deals in enterprise software
  • Oversubscribed fund gets backing from CalSTRS, NYS Common
  • Activist investors, competition pushing activity in software space

Thoma Bravo closed its 12th flagship fund on $7.6 billion, more than doubling the size of its previous flagship fund. Fund XII was oversubscribed.

The new vehicle will enable the firm to move into larger deals while retaining a foothold in the enterprise-software sector’s middle market, where it staked its reputation as one of the industry’s top-returning managers, Managing Partner Orlando Bravo told Buyouts.

“This [fundraise] was bigger, faster, better,” he said. “It allows us to pursue as large a deal as we’d like to pursue, but also pursue middle-market deals if that’s more attractive.”

The post-recession tech boom, along with stiff competition from high-flying firms like Thoma Bravo and Vista Equity Partners, pushed median EBITDA multiples on software deals to 13.1x in the first half, according to a report from boutique investment bank Solganick & Co.

Meanwhile, deal volumes in the sector increased almost 16 percent from the year-earlier period.

“There has never been more deal flow than today in software,” Bravo said. “The disruption of established vendors, and the now irreversible shift to cloud computing, is forcing a lot of these businesses to review their business models.”

Activist investors have also played a role, Bravo said.

In June, Thoma Bravo purchased publicly traded Qlik Technologies after hedge fund Elliott Management Corp pushed the data-analytics company’s board to explore a sale.

Thoma Bravo’s $3 billion all-cash investment represented a 40 percent premium over the company’s unaffected 10-day average stock price prior to March 3, 2016.

To accommodate stiffer pricing, Thoma Bravo’s new fund can invest as much as $1 billion per transaction, double what it could for Fund XI, which raised $3.65 billion in 2014.

LP support

Even as it signaled its intention to move into larger deals, Thoma Bravo’s track record likely generated a lot of goodwill among the firm’s existing investors.

In a presentation for Los Angeles City Employees’ Retirement SystemPortfolio Advisors ranked Funds VII through X as top quartile for each of their respective vintage years. Fund IX, Thoma Bravo’s 2008 fund, was netting a 43.5 percent internal rate of return through Sept. 30, according to the report.

LACERS committed as much as $25 million to Fund XII in April. The fund also received support from major private equity limited partners like California State Teachers’ Retirement SystemMinnesota State Board of Investment and New York State Common Retirement Fund.

According to Bravo, Thoma Bravo’s historical returns and general interest in software-sector assets drove the bulk of LP commitments to Fund XII. The firm also helped itself by cutting its management fee as well.

Fund XII LPs will pay an annual management fee equal to 1.5 percent of what they commit to the fund during its investment period. Afterward, the fee falls to 1.5 percent of net invested capital. Fund XI offered a similar arrangement with a 2 percent management fee.

“We were being proactive in terms of making a change to the benefit of all the LPs, as the pool of capital was larger. This was a change we introduced ourselves. This was not a change we were asked to make,” Bravo said.

Thoma Bravo has raised more than $17 billion since its inception. The firm has offices in Chicago and San Francisco.

Action Item: For more information about Thoma Bravo, visit www.thomabravo.com