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Thoma Bravo's big year of dealmaking, fundraising sets up for even bigger 2020

In a private equity industry where many investors are broadening their areas of focus, Thoma Bravo has one very specific goal: invest in software companies.

And the buyout shop has invested a lot of late, completing a firm-record 36 PE deals so far in 2019, according to the PitchBook Platform. It hasn't hesitated to spend big, either, with four completed transactions eclipsing the $1 billion mark and two more expected to close next year. That's no coincidence, given the firm closed its 13th flagship fund on a $12.6 billion hard cap in January, marking its largest fund ever.

Indeed, it was a big year of spending and fundraising for Thoma Bravo. And there's no reason to expect that to slow down any time soon.

The firm's positive momentum has been driven largely by its lofty returns. For Thoma Bravo Fund XII, which closed on $7.6 billion in 2016, the vehicle has outperformed most of its benchmark in IRR and TVPI, as of 3Q 2019, according to PitchBook data.

Dating to 2000, all nine of the firm's buyout funds that are at least two years old rank in the top half of their benchmarks in IRR, with seven of those vehicles placing in the top quartile.

Why so much success? Co-founder Orlando Bravo has credited the firm's narrow focus.

"The way we create alpha is by focusing on what we do best—and at Thoma Bravo, we're very good at two things," Bravo said in a Bloomberg interview last week. "Number one, we're able to close and buy some of the best software companies. And at the same time, we're very good at changing the operations of those software companies so they can innovate a lot better."

Limited partners hungry for returns will surely have taken notice in a year when US private equity fundraising has hit an all-time high. In October, Bloomberg reported Thoma Bravo is already considering following up with another flagship vehicle in early 2020 that could raise $15 billion.

In the meantime, the firm has been deploying capital quickly. To start the year, Thoma Bravo completed two massive acquisitions in January, buying application security company Veracode from Broadcom for $950 million and cybersecurity company Imperva for $2.1 billion.

In February, Thoma Bravo acquired ConnectWise, a provider of business management and IT software, for a reported $1.5 billion. Two months later, the firm completed the take-private buyout of Ellie Mae, which provides a platform for the mortgage finance industry, for $3.7 billion. Earlier this month, it bought JD Power, a provider of consumer analytics services for the automotive industry, from China's XIO Group with reports indicating a roughly $1.9 billion enterprise value.

Looking ahead to multibillion-dollar deals expected to close in 2020, Thoma Bravo made its biggest move in October when it agreed to acquire UK-based cybersecurity behemoth Sophos at a roughly $3.9 billion enterprise value. Lastly, the firm agreed two weeks ago to acquire edtech company Instructure, which makes the Canvas learning management system, in an all-cash deal worth about $2 billion.

The overall boom in software investments is nothing new in the private equity industry. And Thoma Bravo has helped lead the surge, ranking among the most active PE firms in the sector in 2019, according to PitchBook data:

1. TA Associates (40)
2. Vista Equity Partners (37)
3. Insight Partners (33)
4. Thoma Bravo (28)
5. Providence Equity Partners (25)

Should Thoma Bravo's latest fund reach its $15 billion target next year, it would only continue the firm's ascent in the PE hierarchy.

Featured image courtesy of kentoh/iStock/Getty Images Plus
 

Investor Spotlight: The rapid rise of Thoma Bravo