Talking Deal Prices: Thoma Bravo faces lofty valuations, volatility

The price amounted to some sixty times Mediware’s annualized net income of $3.2 million, derived from its last quarterly results prior to the closing of the deal, or about 3x its annualized revenue of about $64 million.

Those multiples may not seem particularly low. But since then, deals appear to have gotten only pricier, with health care information technology playing a starring role in the inflationary picture.

“Over the last year to 18 months, prices have definitely been high,” said Scott Crabill, managing partner, Thoma Bravo. 

Outside of the hotter sectors in tech and healthcare, buyout deals across the board by U.S. sponsors rose to an average purchase price multiple of 11.2x EBITDA in the third quarter, up from 8.5x EBITDA in the year-ago period, according to S&P Capital IQ.

Crabill said drops in the equity markets in October and volatility in both public equities and bonds may help put a lid on deal prices. But whether buyout prices pull back or not, Thoma Bravo finds that dealing with the current market demands as much selectivity as ever.

“We’re focusing on really high-quality franchises and looking for businesses where we can create value through operational improvements or by making acquisitions,” he said. “You have to have a real focused strategy on creating value to offset the fact that prices are high.”

In the case of Mediware, Thoma Bravo has already added on three companies to the platform, starting with MediServe Information Systems in late 2012; it also bought Fastrack and Definitive Homecare Solutions in 2013 to boost offerings in post-acute care at home.

Thoma Bravo’s Crabill continues to sift for deals, but the firm has a selective view on using debt.

“We look at it on a case by case basis,” he said. “We want to make sure that whatever leverage we put on the company it can support it. We want to make sure they can pay down at least half their debt in three or four years. We generally haven’t taken as much debt as was available.”

While Thoma Bravo remains a technology specialist, health care continues to draw interest as an industry rich for deals.

“It’s growing faster than other verticals—it’s a really, really dynamic market,” Crabill said. “It’s always evolving and changing. You can find companies that are growing and taking share and doing some really exciting things.”

He highlighted three platform deals from Thoma Bravo, but declined to provide any purchase price information:

  • The firm closed the purchase of SRS Software LLC in early 2013. It’s an electronic health record provider to doctors with a focus on orthopedic, ophthalmology, cardiology and other specialty ambulatory physicians.
  • In early 2014, Thoma Bravo bought Global Healthcare Exchange, or GHX, an exchange between hospitals and medical device and medical supply vendors to speed up purchasing transactions.
  • In July it closed the purchase of Sparta Systems, a quality-management specialist for pharmaceutical and medical device manufacturers, from Summit Partners and Altaris Capital Partners

Blackstone, Warburg Zapped In Kosmos Energy Offering

Talk about a double whammy. Warburg Pincus and Blackstone Group both lined up to sell shares in Kosmos Energy in October amid weakness in equity markets and after a sharp drop in crude oil prices by as much as $20 a barrel to the low $80s.

Warburg Pincus set plans to sell 8.25 million shares, while Blackstone Group offered 6.75 million shares, according to a prospectus for Kosmos Energy, an independent oil and gas exploration company operating off the coast of Ghana, and exploring in offshore Ireland, Mauritania, Morocco, Portugal, Senegal and Suriname.

On Oct. 3, Kosmos Energy shares closed at $9.85, with a proposed maximum offering price per share at $9.33, valuing Warburg’s share sale at $77 million and Blackstone Group’s at just under $63 million. 

Seven days later, on Oct 10, Kosmos Energy announced the close of the secondary share sale. By that time, its share price had fallen to $9.14. It dropped even further to $8.54 a share on Oct. 14, its lowest level since going public at $18 a share back in 2011. It is not clear at what price Warburg Pincus and Blackstone Group sold their shares for.

Warburg Pincus still holds about 30.5 percent of the company, or 118 million shares, while Blackstone Group owns about 25 percent, or 96.6 million shares, according to a prospectus. While the stock has rebounded of late to approach $9 share, it may be a while before Kosmos Energy files another stock offering if current commodity and stock price trends continue.