In the latest sign tech M&A continues to draw investors, Luminate Capital Partners closed its third fund today in an oversubscribed $1 billion raise. The fundraising significantly exceeded its $700 million target, and tips the scales relative to Luminate’s 2018 vintage fund of $425 million. Founder and Silver Lake Partners alum Hollie Haynes talks to us about what’s next in the space.
“The cloud-based software market is huge and growing quickly,” Haynes tells Mergers & Acquisitions. “This market opportunity remains significant given the amazing array of growth-oriented SaaS companies that have emerged over the last decade,” referring to Software-as-a-Service developers.
For Luminate, the market provides opportunities to execute on its unique approach. Its funds target enterprise software companies that are high growth market leaders. “Luminate has focused on making money for our investors by doing software buyouts in which we drive organic revenue growth and product strategy, not cost cuts,” Haynes says.
The firm’s funds have recapitalized several holdings in recent months, including Conexiom with Iconiq Capital and Overnight Systems with TCV.
Enterprise software M&A is expected to continue to be robust this year as companies across sectors invest in their own capabilities, we previously reported. The pandemic has accelerated companies’ technological adoption rates. Increasing applicability of artificial intelligence and data analysis should also prove a deal driver for the technology sector.
“Many software buyouts will continue to be driven by cost cuts, but that’s not Luminate’s focus,” Haynes notes.
There’s room to differentiate winners from losers in the software market. Look no further than today’s other big sector announcement for a counterpoint: Clayton, Dubilier & Rice and KKR announced plans to take enterprise cloud software company Cloudera (NYSE: CLDR) private for $5.3 billion. The deal comes roughly a year after Cloudera was first reported for sale, and at a price registering a 20 percent discount to the company’s 52-week high of $19.35.
A protracted sale process that nets a winning bid at a discount to February trading multiples would normally be bait for activist investors, but top shareholder Icahn Group supports the deal. That’s perhaps the biggest sign that execution is a key differentiator in the space.
Cloudera faces mounting competition for its cloud-based offering from Amazon (Nasdaq: AMZN), Alphabet (Nasdaq: GOOG) and Microsoft (NYSE: MSFT), with revenue growth plateauing in recent quarters.
Read more on the deal here: KKR, CD&R Buy Cloudera for $5.3B.