A Good Omen

We have been witnessing a flurry of public-to-private (P2P) tech transactions led by PE funds. The US saw P2P value hit $96B in the first six months of 2022, compared to $118B in all 2021 (all economic sectors, source Preqin).

Obviously, the Nasdaq turmoil has made P2P tech transactions less expensive than a year ago. In theory, the P2P tech deals that were struck this year appear to be big bargains considering where those shares were trading in mid-2021. So let’s dive into some recent P2P tech (software)-B2B deals (Target company – PE firm – Deal value – ltm revenue multiple):

* Avalara – Vista Equity – $8.4B – 10.2x

* Anaplan – Thoma Bravo – $10.4B – 16.4x

* Ping Identity – Thoma Bravo – $2.8B – 7.8x

* SailPoint – Thoma Bravo – $6.9B – 14.0x

* BillTrust – EQT — $1.7B – 9.3x

* ForgeRock – Thoma Bravo – $2.3B – 12.2x

* KnowBe4 – Vista Equity – $4.6B – 15.9x

(Source: Yahoo Finance, Pitchbook)

To put the size of these transactions in context, Totvs, the largest (by far) tech Brazilian company, has a market cap of $3.4B.

Conclusion

Tech VC-backed startups are typically fast-growing and thus carry higher multiples.

The more mature public tech companies that PE funds turn private typically bear lower growth rates but, on the other hand, are less risky and volatile, a necessary condition for a successful LBO operation.

Vista Equity, Thoma Bravo, and other mega PE funds share a track-record of delivering outstanding returns. If their recent P2P tech transactions are still fetching high revenue multiples of over 10x (knowing that public discounts have been in the 50% off range from recent highs), it is undoubtedly a good omen for tech late stage VC investors.