Big take-private deals are the name of the game for Thoma Bravo in 2021. The private equity firm, which focuses on the software and technology-enabled services sector, announced another big one today. It’s buying Medallia Inc. (NYSE: MDLA), a customer experience software firm that uses artificial intelligence to create predictive insights for businesses, for $6.4 billion. Earlier in July, Thoma Bravo announced the $6.6 billion take-private deal for, a pioneer in online postage and e-commerce shipping software. In June, the firm agreed to buy QAD Inc., a specialist in manufacturing and supply chain software, for $2 billion. And that’s not even counting the mega deals of April, when the firm announced the $12.3 billion deal for cybersecurity provider Proofpoint and closed the $10.2 billion acquisition of RealPage, a provider of software and data analytics to the real estate industry.

“Big deals, ten years ago, were smaller deals in software, and there was a stagnant kind of set of companies that you would call big software companies,” partner Chip Virnig told Mergers & Acquisitions at our Rising Stars of Private Equity SPEAK virtual event earlier this month. There are a number of factors driving big deals in enterprise software today, he explained.

For one thing, the pool of companies experiencing fast growth is larger, Virnig said. “Companies with $500 million in revenue, growing at 20 percent, get there pretty quick. The opportunity set is massive.” Also, innovation in the debt markets is playing an important role. “Rates are low; debt is plentiful; and in software buyouts, there’s been a lot of innovation in debt markets,” Virnig explained. Twenty years ago, lenders looked at hard assets. Then with software companies, creditors looked at cash flow. Now they’re looking at recurring revenue loans. “That didn’t exist three to four years ago.” Finally, limited partners that invest alongside general partners represent another important driver. “Bringing a bunch of GPs together still happens, but now with the LPs being so active and trusting the GPs, they’re willing to go bigger on direct investments, so, instead of two to three PE firms in a syndicate, you can call your limited partners for the same outcome.” You can watch the discussion, which included also dealmakers from Carlyle and Apollo, here.

– Mary Kathleen Flynn