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10 PE firms share strategies for tech M&A

Technology permeates many of today’s private equity deals, and PE firms are hot on the trail of innovations that will drive sustainable value to customers and make companies more efficient, more effective and less expensive to run. Among the developments appealing to PE investors are: artificial intelligence, data management, data virtualization, digital marketing, healthcare IT, industrial automation, the Internet of Things, machine-to-machine learning, payment processing and Software-as-a-Service.

“Technology, in and of itself, is invading every end market, and it is driving companies to be more competitive than their peers,” points out Richard Lawson, CEO of tech-focused PE firm HGGC. “PE firms will continue to look to invest in companies involved in updating end markets that are still steeped in outdated technology, such as retail stores, car dealerships, market research, insurance providers and the legal/patent market.”

As PE firms consider the tech landscape, they are watching Amazon.com Inc. (Nasdaq: AMZN) closely. “We are always thinking about how we can help companies that are going to get dislocated and disintermediated by Amazon,” says Lawson. “End markets everywhere are being changed by Amazon. As Amazon scales, it will challenge all kinds of industries and it will have a cascading effect across all sectors. You are already seeing more companies trying to connect their brands with consumers in new ways.”

To gain more insights into what kinds of tech deals will dominate the field in 2019, Mergers & Acquisitions reached out to 10 private equity firms that are active investors in technology. These include a mix of generalist and specialist firms. Here are profiles of the firms, outlining their strategies and investments in tech.

Francisco Partners
franciscopartnerstech
Founded in 1999 and headquartered in San Francisco, the firm manages $12.3 billion.

Leadership: Dipanjan “DJ” Deb, co-founder and CEO; Ezra Perlman and Deep Shah, co-presidents; David Golob, chief investment officer; Tom Ludwig, chief operations officer; and Mike Kohlsdorf, president, Francisco Partners Consulting.

Investment thesis: “Complexity Arbitrage.” The firm buys “complexity at discount and sells clarity at premium.” Accomplishes this by partnering with management teams to unlock growth potential, simplify operational complexity and clarify strategic positioning. Opportunities extend from backing disruptive growth technology companies to helping operationally intensive situations. Invests across technology sector, including communications, edtech, fintech, healthcare IT, Internet, security, software and semiconductors.

Deals: GoodRx, a healthcare consumer app that gathers real-time pricing and coupon information from U.S. pharmacies. Recently sold a portion of the firm’s stake to Silver Lake in a company recapitalization. Sold Paymetric, which automates business-to-business payment workflows, for $550 million to Vantiv in 2017, after acquiring the company for approximately $90 million in 2013. Acquired Dell Software group as a division carveout for approximately $2.5 billion in 2016. The firm later separated it into two operating companies: Sonicwall (security) and Quest (infrastructure software).

Technologies: Excited by technologies that drive sustainable value for a customer base, make companies or industries more efficient and help save time or money.
Genstar Capital
genstarcapitaltech
Headquartered in San Francisco, the firm manages about $10 billion.

Leadership: Jean-Pierre Conte, chairman and managing director; Ryan Clark, president and managing director; Rob Rutledge, managing director; Tony Salewski, managing director; and Eli Weiss, managing director.

Investment thesis: The firm invests in vertically-oriented software businesses considered market leaders that often can serve as consolidation platforms.

Deals: The firm recently raised its ninth fund at around $7 billion. Recently acquired DrillingInfo, a Software-as-a-Service data provider for the energy industry, from Insight Venture Partners. Acquired Bullhorn, a SaaS provider to the staffing industry, in partnership with Insight, from Vista Equity Partners, in 2017. Bought a stake in PDI, a provider of software for convenience stores, from TA Associates, in 2017.

Technologies: Excited about businesses that provide a combination of software and data or payment processing.
Great Hill Partners
greathillpartnerstech
Founded in 1998 and headquartered in Boston, the firm manages $3.92 billion.

Leadership: Christopher Gaffney, co-founder and managing partner; Michael Kumin, Matthew Vettel and Mark Taber, managing partners.

Investment thesis: The firm deploys a middle-market growth buyout strategy based on rigorous sector research, proactive origination, value-added company-building tactics, conservative use of leverage and an emphasis on exits to large, strategic buyers.

Deals: Sold Ascenty, a provider of data center services in Brazil, to Digital Realty for $1.8 billion. Invested in a majority recapitalization of Vatica Health, a provider of software to health plans. Invested $65 million in Paytronix Systems Inc., a provider of customer engagement software for restaurants.

Technologies: Excited about innovations that reduce healthcare costs, enable payments and move companies into the public cloud.
HGGC
hggctech
Founded in 2007 and headquartered in Palo Alto, California, the firm has $4..3 billion in cumulative capital commitments.

Leadership: Rich Lawson, co-founder and CEO; Steve Young, co-founder and managing partner (former quarterback for the San Francisco 49ers).

Investment thesis: “Advantaged Investing.” The firm partners with founder-owners, management teams and sponsors early in the value creation lifecycle to build differentiated middle-market businesses.

Recent Deals: Paid RPX Corp. shareholders about $555 million in cash to take private the patent acquirer and patent risk manager. Invested in Mi9 Retail, which provides software for retailers’ operations from inventory management to payment systems, and merged it with portfolio company MyWebGrocer. Bought a controlling stake in HelpSystems, a global provider of IT operations management, security and analytics, for an undisclosed amount.

Technologies: Invests in companies that are using technology to transform traditional industries. The firm is excited about data virtualization, or technology that integrates data from disparate sources, locations and formats to create a single “virtual” data layer, resulting in faster data access, less replication, lower costs and greater agility for change.
Insight Venture Partners
insightventurepartnerstech
Founded in 1995 and headquartered in New York, the firm manages more than $20 billion.

Leadership: Jeff Horing, co-founder and managing director; Deven Parekh, managing director.

Investment thesis: With an approach the firm describes as “straightforward and results-driven,” it deploys “core pillars” of scale, focus, and experience to help software companies capture value and generate long-term business success.

Recent deals: Acquired Episerver, a provider of digital content, commerce and marketing cloud software, for $1.16 billion from Accel-KKR. Led a $165 million Series D funding round in JFrog, which offers a software release platform for continual updates.

Technologies: Excited about artificial intelligence and machine learning, healthcare technologies and cybersecurity.
LLR Partners
llrpartnerstech
Founded in 1999 and headquartered in Philadelphia, the firm has more than $3.5 billion in cumulative capital commitments.

Leadership: Mitchell Hollin, Scott Perricelli, David Reuter, Jack Slye and David Stienes, partners.

Investment thesis: The firm makes minority and majority investments in growing companies with minimum revenues of $10 million and equity capital requirements of $20 million to $100 million in education, healthcare, fintech, industrial tech, security (cyber/physical) and software industries.

Deals: Partnered with Kevin Jones to form Celero Commerce, an e-commerce software provider, and made an investment in UMS Banking, Made a growth capital investment in Edlio, a provider of software for K-12 schools. Invested in Edmunds & Assoc., a software provider for government agencies.

Technologies: Excited about technologies in the test and measurement, electronic components and Internet of Things/machine-to-machine sectors, as well as payments, wealth management, lending and hospitality technologies.
Silver Lake
silverlaketech
Founded in 1999 and headquartered in Menlo Park, California, and New York, the firm manages about $45.5 billion.

Leadership: Mike Bingle, Egon Durban, Ken Hao and Greg Mondre, managing partners/managing directors.

Investment thesis: The firm invests in what it considers to be the world’s leading technology companies and tech-enabled businesses. Seeks to cultivate proprietary or specialized investment opportunities not typically available to generalist investors and to partner with “premier” management teams.

Deals: Acquired a majority stake in ServiceMax, a provider of cloud-based productivity tools for field service technicians, from GE Digital. Acquired ZPG Plc, which develops property listing websites, for about $2.8 billion. Bought a stake in GoodRx, which gathers real-time pricing and coupon information from U.S. pharmacies, from Francisco Partners.

Technologies: Invests strategically and selectively across the broad value chain of the technology industry.
TA Associates
tassociatestech
Founded in 1968 and headquartered in Boston, the firm manages about $13 billion.

Leadership: Brian Conway, chairman and managing partner; Ajit Nedungadi, managing partner.

Investment thesis: The firm invests in profitable, high-growth companies with high-quality business models. Aims to help management accelerate organic growth by identifying accretive acquisition opportunities and accelerate performance with consulting and operating experience.

Recent deals: Invested in Datix, a provider of healthcare software. Invested in Flexera, a provider of software asset management solutions. Acquired Insightsoftware.com International, an enterprise software provider, from Thompson Street Capital Partners.

Technologies: Excited about vertical market software applications, healthcare information technology and financial technology products that serve the capital markets, payment and buyside sectors.
The Riverside Co.
riversidecotech
Founded in 1988 and headquartered in New York and Cleveland, the firm manages about $8.4 billion.

Leadership: Béla Szigethy and Stewart Kohl, co-CEOs.

Investment thesis: The firm is focused exclusively on the smaller end of the middle market, and makes control and non-control investments in growing businesses valued at up to $400 million. For 30 years, and more than 560 investments, Riverside has honed its approach to sourcing and growing “little leading” companies.

Deals: Invested an undisclosed amount in Destiny Solutions, which makes software that helps higher education institutions manage continuing education and non-degree programs more effectively and efficiently. Invested in Spirion, a provider of IT security and data privacy software. Sold Grace Hill, a provider of online training, credentialing and performance assessment tools for managers of multifamily properties, for an undisclosed price to Stone Point Capital, after more than doubling Grace Hill’s sales since it acquired the target in 2014.

Technologies: Excited about analytical software; Software-as-a-Service; and enterprise systems that offer mission-critical tools, data aggregation and business intelligence.
Vista Equity Partners
vistaequitytech
Founded in 2000 and headquartered in Austin, Texas, the firm currently has more than $46 billion in cumulative capital commitments.

Leadership: Robert F. Smith, founder, chairman and CEO; Brian Sheth, co-founder and president.

Investment thesis: The firm invests exclusively in software, data and technology-enabled organizations led by management teams the firm considers “world-class.” Vista takes a value-added investment approach with a long-term perspective that leverages the firm’s deep operational expertise to help companies realize their full potential.

Recent deals: Sold marketing software developer Marketo to Adobe for $4.75 billion, after having bought the target for $1.8 billion in 2016. Acquired Dispatch, a field service and customer experience logistics provider, for undisclosed terms.

Technologies: Invested in artificial intelligence and machine learning technologies across its portfolio and developing blockchain technologies in strategic areas to add value to its companies and their products. Vista says it is committed to investing in technologies that leverage data in a responsible and secure way that produces insights and unlocks value for Vista companies and their customer.