Technology in general, and software in particular, have become inherent in so many businesses, says Alan Peyrat, a partner at the Riverside Co. “It’s hard to find a company today where tech is not a major piece of the business.” Private equity firms are racing to acquire tech targets, as innovations, including Software-as-a-Service, cloud computing and cybersecurity, are expected to drive M&A throughout the middle market in 2017. Here’s a look at the tech investment strategy of generalist Riverside, as well as the strategies of three tech-focused middle-market firms that have raised recent private equity funds.

The Riverside Co.

Riverside, which won Mergers & Acquisitions’ M&A Mid-Market Award for Seller of the Year for 2014 and 2015, is certainly not a tech-only PE firm. But technology permeates the industries it invests in, which include: business services; consumer brands; education and training; franchisors; healthcare; software and IT; and specialty manufacturing and distribution.

The firm, headquartered in Cleveland and New York, has significantly ramped up its investments in technology companies. Thirty percent of the companies Riverside backed in 2016 were tech-related, up from 20 percent traditionally. The firm’s portfolio is now 25 percent tech-related.

Software-as-a-Service (SaaS) plays a big role in Riverside’s investments. The SaaS distribution model was pioneered by Inc. (NYSE: CRM ) and NetSuite Inc., both of which played a role in M&A in 2016. Oracle Corp. (NYSE: ORCL) bought NetSuite in a deal valued at about $9.3 billion. And Salesforce made numerous acquisitions during the year, including picking up Demandware for $237 million. All of the recent M&A activity surrounding SaaS validates the model.

“SaaS is now the predominant way to deliver software, for good reason,” says Peyrat. “There are two major benefits of SaaS. One is that the methodology to provide service from one centralized platform is much more efficient than the old paradigm of license maintenance, which meant multiple versions of software. The other benefit that is so attractive is the recurring revenue model. Instead of selling a license once and getting small residual fees for updates, SaaS provides a steady, predictable revenue model.”

Just one example of dozens of recent SaaS investments made by Riverside is a majority stake in Competitive Edge Software of Oak Creek, Wisconsin. The company develops a software suite called Report Exec, which provides cloud-based security and law enforcement reporting and management solutions to customers in a variety of industries including education, healthcare, corporate, private security and law enforcement.

Report Exec was founded in 1995 by Sean Mars, a former police officer who saw firsthand the reporting and compliance requirements of his colleagues and the need for a comprehensive software solution to automate these processes. Since that time, Report Exec has invested heavily in product development to provide its customers with industry-leading solutions.

“Report Exec has a compelling value proposition and significant untapped market potential,” says Riverside partner Joe Lee. “Given our expertise in the space, we are excited about continuing to invest in the product, grow the sales team and expand the company’s footprint.”

Thoma Bravo

Thoma Bravo LLC, which focuses on the software and technology-enabled services sectors, closed its 12th fund, Thoma Bravo Fund XII, at a hard cap of $7.6 billion in September. The Thoma Bravo Fund XII allows the Chicago and San Francisco-based private equity firm to pursue software and technology investments of “almost any size.” The fund was significantly oversubscribed, according to the firm.

“The software industry is entering a new phase of secular growth as it expands into all segments of the economy,” states managing director Orlando Bravo. “Significant industry trends, including changes in software companies’ business models and the current dissatisfaction with the public equity markets, have created a new opportunity for private equity in the software industry.”

With a series of funds representing more than $17 billion in capital commitments, Thoma Bravo’s strategy is to partner with a company’s management team to implement operating best practices, invest in growth initiatives and make accretive acquisitions intended to accelerate revenue and earnings, with the goal of increasing the value of the business. Representative past and present portfolio companies include: Blue Coat Systems, Deltek, Digital Insight, Global Healthcare Exchange, Hyland Software, PowerPlan, Riverbed, SolarWinds, SonicWall, Sparta Systems and TravelClick. Mergers & Acquisitions awarded Thoma Bravo with the 2014 M&A Mid-Market Award for Deal of the Year for the $930 million purchase of TravelClick.

In 2016, Thoma Bravo made many acquisitions, including: Bomgar, which sells secure access software for computer systems and devices, from TA Associates; Elemica, which provides supply chain operating network management softwareImprivata, a healthcare IT security company, for $544 million; and Qlik Technologies Inc., provider of enterprise software that helps companies analyze and share data for insights into business patterns, for $3 billion.

In January, the firm agreed to purchase a majority stake in Planview, a software manufacturer for the work and resource management industries, from Insight Venture Partners. Also in January, the firm sold Landesk, a provider of endpoint security and systems lifecycle and IT service management, to Clearlake Capital (which also bought data protection software provider Vision Solutions from Thoma Bravo in 2016). Thoma Bravo’s exit from Landesk culminated a six-year partnership between the two companies. Thoma Bravo acquired Landesk in 2010 through a carve-out from Emerson. Following the acquisition, Landesk completed seven strategic add-on acquisitions, including Shavlik and AppSense, to create a more robust product portfolio and accelerate revenue growth.

In December, Thoma Bravo completed the sale of portfolio company Deltek, a provider of enterprise software and solutions for project-based businesses, to Roper Technologies Inc. (NUSE: ROP) for $2.8 billion. Thoma Bravo also sold Mediware Information Systems Inc., a provider of software for healthcare and human services, to TPG Capital.

Many of Thoma Bravo’s deals have been fueled by strong interest in cybersecurity, as high-profile breaches have underscored the need for protection, including: denial-of-service attacks on Internet tech provider Dyn, currently being acquired by Oracle; huge breaches of Yahoo accounts in the midst of the struggling Internet’s planned acquisition by Verizon Communications Inc. (NYSE: VZ); and the cyber-intrusions into the computers of the Democratic National Committee and other Democratic Party groups.


In December, HGGC closed its third fund with aggregate capital commitments of $1.84 billion, with $90 million from the firm’s general partners, including Steve Young, the former San Francisco 49ers quarterback. Fund III was raised in less than 100 days, according to the private equity firm, which is based in Palo Alto, California. HGGC invests in middle-market companies in such sectors as technology and information services, business and financial services, and industrial services.

Fund III, which was launched on Sept. 6 and closed on Dec. 14, was raised much more quickly than the firm’s previous funds, HGGC CEO Rich Lawson tells Mergers & Acquisitions. The firm’s first fund took about a year and a half to raise, and the second one took about a year, Lawson recalls.

The completion of HGGC’s fundraise comes at a time of high interest in tech M&A. The firm looks to invest in companies involved in updating end markets that are still steeped in outdated technology, such as grocery stores, car dealerships, marketing agencies and insurance providers.

“Technology, in and of itself, is invading every end market, and it is driving companies to be more competitive than their peers,” Lawson says. “What’s changed is the proliferation of a computer in everyone’s pocket. There’s a much more sophisticated end-user base, and that is driving change in how businesses will have to compete.”

HGGC’s current portfolio companies include: Dealer-FX, a provider of software to automotive dealers; FPX, a provider of enterprise configure-price-quote software; Integrity Marketing Group, a senior life and health insurance distribution business; and Survey Sampling International, a provider of data and analytics for consumer and business-to-business survey research. Prior investments include: Sunquest Information Systems, sold for $1.4 billion to Roper Technologies; Hybris Software, sold for more than $1 billion to SAP AG; and Serena Software, sold to Micro Focus International for $540 million.

With the closing of Fund III, HGGC boasts more than $4.25 billion of cumulative capital commitments from a range of public and private pension funds, sovereign wealth funds, insurance companies, family offices and other institutional investors in North America, Europe, Asia and the Middle East. HGGC raised $1.25 billion from existing investors and $500 million from new investors to round out the Fund III hard cap of $1.75 billion.

Fund III surpassed its target of $1.5 billion and reached its $1.75 billion hard cap, exclusive of the general partner commitment. HGGC professionals are substantial personal investors in Fund III and remain collectively one of the largest investors across HGGC’s three funds, driving a strong alignment of interests between HGGC and its limited partners, according to the firm.

HGGC was founded as Huntsman Gay Global Capital in 2007. The investors for which the firm was named  – Jon Huntsman Sr., chairman of chemical maker Huntsman Corp. (NYSE: HUN), and Robert Gay, a leader in the Church of Jesus Christ of Latter-Day Saints – did not participate in the firm’s second and third funds.  The team running HGGC today includes three of the original founders  – Lawson, Young and Greg Benson, a former Bain Capital executive –  plus Gary Crittenden, former chief financial officer of Citigroup Inc. (NYSE: C). Mergers & Acquisitions named HGGC the winner of the M&A Mid-Market Award for Private Equity Firm of the Year for 2014, when the firm raised its second fund after the departure of Huntsman and Gay.


In November, ParkerGale Capital LP closed its debut buyout fund of $240 million, exceeding the original target of $200 million. The private equity firm, founded by the former technology investment team of Chicago Growth Partners, focuses on acquiring profitable, founder-owned tech companies in the lower middle market.

The Chicago firm makes majority investments in businesses that generate $2 million to $10 million in Ebitda. Portfolio companies specialize in providing tech-enabled business services that use, or are moving toward using, the Software-as-a-Service (SaaS) model for distributing applications. ParkerGale has already invested in two tech-enabled business service providers, Aircraft Technical Publishers, which made an add-on acquisition of CaseBank Technologies in December; and waste monitor OnePlus Systems, which made an add-on deal of SmartBin in March.

“Private equity people love the visibility and the recurring nature of revenue in the SaaS model,” says ParkerGale co-founder Kristina Heinze, who was named one of Mergers & Acquisitions’ Most Influential Women in Mid-Market M&A. “Small funds outperform larger funds, and specialists outperform generalists,” says Heinze, making the case for the young firm.

And while the firm is new, the team has worked together for more than a decade, she points out. ParkerGale was formed in 2014 by the former technology investment team from Chicago Growth Partners, including Heinze and partners Dave Chandler, Devin Mathews, Jim Milbery, Ryan Milligan, chief financial officer Corey Dossett and office manager Sharon Janowski. Private equity industry veteran Tim Murray serves as the fund’s senior adviser. BearTooth Advisors acted as strategic fundraising adviser, and Kirkland & Ellis acted as fund counsel.

As the private equity industry matures, new players, including family offices, independent sponsors and spin-offs from established firms are entering the asset class.

More M&A Ahead

More tech funds are on the horizon. Vista Equity Partners, which has become an important buyer of middle-market tech companies from other PE firms, is currently raising its sixth fund with a hard cap of $10 billion, which would make it one of the largest technology-focused funds ever raised. Led by CEO Robert Smith, Vista bought Solera Holdings Inc., which provides software for the automobile claims-processing industry, in a take-private deal valued at $6.5 billion. Vista’s portfolio includes business software provider Tibco Software Inc. and cybersecurity company Forcepoint LLC.

Tech M&A is expected to soar over the next year, according to Mergers & Acquisitions’ Mid-Market Pulse (MMP). Activity will be fueled by companies in a wide array of industries that are seeking to improve efficiency in business processes and increase protection against cyberattacks.