Tech companies say going private comes with benefits | Mint

Tech companies say going private comes with benefits

Citrix Systems
Citrix Systems

Summary

Newly private IT businesses laud their freedom to focus on long-term growth rather than quarterly numbers, but acknowledge ‘pockets of concern’ from customers over potential changes

Private-equity firms are snapping up public companies at a record pace, a move that can rattle chief information officers as trusted tech vendors come under new management.

Newly private tech firms and their private-equity owners say the change is for the better, partly because the companies can focus on the long term instead of on delivering quarterly profits—although the shift typically comes with some growing pains and concerns.

“One of the biggest risks as a CIO when one of your vendors gets acquired is the product you have: Is that the one that will get killed to cut costs?" said Garrett Bekker, principal research analyst at market-research firm S&P Global Market Intelligence. “Generally you don’t want your vendor to get acquired," Mr. Bekker said.

“From our standpoint, we know customers and other stakeholders get nervous," said Monti Saroya, senior managing director and co-head of Vista Equity Partners’ Flagship Fund. Vista said earlier this year that it planned to acquire software company Citrix Systems Inc. in a deal valued at $16.5 billion, including debt, and in early August said it would buy cloud-based tax-management software maker Avalara Inc. for $8.4 billion.

Mr. Saroya said customers’ concerns are typically addressed quickly because Vista focuses on helping its acquisitions scale up their offerings.

“In a private setting, we’re very much more focused on long-term growth and we worry less about quarterly performance," he said, adding, “The adjustment is actually on mind-set."

Private-equity firms globally spent a record $220.83 billion on take-private deals in the first half of 2022, up from $162.81 billion in the comparable period last year, according to data provider Dealogic. In the U.S. alone, private-equity firms spent $130.23 billion on take-private deals between January and June, nearly double the year-earlier amount.

The transactions included Vista’s acquisition of Citrix, one of this year’s largest deals, which was co-led by affiliates of Elliott Management Corp. and is expected to close in the coming weeks.

Many buyout firms and investor groups striking deals this year have been motivated by the potential for deep discounts for public enterprise-tech vendors, analysts said. The tech-heavy Nasdaq has dropped roughly 30% since the start of the year.

Jason Greenberg, head of global technology mergers and acquisitions at investment bank Jefferies Financial Group Inc., said enterprise-tech companies are attractive acquisition targets for private-equity firms: “They combine predictable revenue streams and, especially for software companies, the potential for expanding profit margins from enhanced scale."

Still, some top executives might worry about the risk of being dropped as a customer or an exodus of a tech vendor’s software developers as it shifts from public to private. “It’s certainly enough to make a CIO nervous," S&P’s Mr. Bekker said.

Kurt Shintaffer, chief financial officer and co-founder of software provider Apptio Inc., said “there were pockets of concern" about the company’s acquisition by Vista, a deal that closed in 2019.

The shift led to some employee departures and the senior leadership team needed to learn to cede some control to a board that was much more engaged in daily operations, Mr. Shintaffer said, although overall he believed the move was for the better.

Free from the scrutiny of its stock price and the pressure of demonstrating quarterly returns, Mr. Shintaffer said the company was able to make longer-term investments such as accelerating the move of its products to the cloud and making acquisitions of its own.

As IT stocks drop, in part due to macro factors plaguing all public markets, Mr. Shintaffer said, “Some of my friends who are still at publicly traded companies right now are wishing they had the cover of the private markets."

For Cloudera, an enterprise data company that last year was acquired by affiliates of private-equity firms Clayton, Dubilier & Rice and KKR & Co. for roughly $5.3 billion, becoming a private company helped accelerate research and development, said Cloudera CEO Rob Bearden.

“Going from a public company to being private has allowed us to make longer-term decisions" that might have chased off public-market investors looking for more immediate returns, Mr. Bearden said.

 

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