Vista executes cross-fund deal in Datto-Autotask merger

  • Announced acquisition of Datto last year
  • Merged Foundation Fund II portfolio company Autotask with Datto
  • Foundation Fund II LPs held Autotask at about 2.8x

Vista Equity Partners recently structured an interesting deal in creating a new platform investment in its sixth flagship fund.

Vista in December closed the acquisition of Datto, which provides data-protection services for businesses. Terms weren’t disclosed.

As part of the transaction, Vista merged Datto with a portfolio company out of its second Foundation Fund, Autotask, which provides software to automate workflows of IT-service providers.

Equity from Autotask, held at about 2.8x cost, was rolled into the newly formed company, according to an LP with knowledge of the transaction.

While Foundation Fund II LPs didn’t receive distributions from the sale, they will continue to hold the equity in the larger company “for more appreciation,” the LP said.

Vista acquired Autotask in 2014 using capital from its second Foundation Fund, which closed on $1.1 billion in 2013. Foundation Fund II was generating a 9.7 percent internal rate of return and a 1.27x total value multiple as of Sept. 30, 2017, performance information from Oregon Public Employees Retirement Fund shows.

Cross-fund transactions like this are not frequently used, according to two LP sources. They can be advantageous, however, depending on the growth prospects of the combined companies.

In this case, Vista said the new company combined Autotask’s IT-management tools with Datto’s data-protection services to create a single provider for managed-service and IT-service providers.

Such transactions usually require approval from the LP advisory committees of the two funds in question, LP sources said. They also generally require an independent valuation, the LPs said. This is to ensure that one fund isn’t benefiting at the expense of another fund.

“What you’re focused on [is:] Is there one fund getting a better deal or worse deal than the other, and if so, why is that the case?” one LP said, speaking in general terms. “What was the GP trying to achieve?”

Vista has moved through its Fund VI at a quick pace after closing fundraising on the pool last year on $11 billion.

The firm is gearing up to launch its seventh flagship fund this year, which sources told Buyouts will target at least as much as the prior pool.

Action Item: Read Vista’s Form ADV here:

Robert Smith, founder, chairman and CEO of Vista Equity Partners, speaks at the Milken Institute Global Conference in Beverly Hills, California, on May 2, 2016. Photo courtesy Reuters/Lucy Nicholson