Moar Thoma Bravo Stuff
The Best Laid Plans
On second thought: This morning, business software firm Anaplan announced a reworked deal with Thoma Bravo, with the private equity firm cutting the size on its planned leveraged buyout to $10.3 billion, a 3.4% discount from the originally agreed-upon price.
Those re-negotiated figures resulted from an unspecified dispute over the target’s adherence to the terms of the transaction, with Thoma Bravo contending that its prospective portfolio company had not fulfilled the necessary obligations to consummate the deal.
For its part, “Anaplan’s position is that it acted at all times in good faith in compliance with the merger agreement and that Thoma Bravo remained at all times obligated to close the original merger agreement according to the original terms,” the company responded today. Ultimately however, the board opted to acquiesce to the slimmed-down price tag “to avoid the risk of lengthy litigation over the disagreement, provide increased closing certainty for its stockholders and close on substantially the same timeline as originally agreed between the parties.”
The board’s willingness to play ball is understandable, considering the revised bid still represents a 41% premium to the software firm’s volume-weighted average share price over the five days prior to the LBO announcement on March 20, while price action this year in publicly-traded software firms hasn’t exactly argued for fancy deal multiples.
Yet vestiges of the grand Covid tech bull market remain firmly intact, as financial innovation helps grease the wheels for that buyout. The private equity giant will help finance the deal for unrated Anaplan (which has lost money on an adjusted Ebitda basis in each year since at least 2016) via a so-called recurring revenue loan calibrated on the company’s top-line prowess (sales registered at $592 million over the 12 months through Jan. 31, up more than 100% from three years ago) rather than cash flow generation.
That relatively newfound practice coincides with the ascent of private credit deals, or loans marketed to nonbanks for borrowers who might struggle to secure more conventional sources of financing. Data service Direct Lending Deals finds that 25 leveraged buyouts featured at least $1 billion in private funding last year, compared to just four in 2020. Thoma Bravo helped bankroll all but three of its 19 deals undertaken last year via the private credit route. “The private debt market gives us the flexibility to do recurring revenue loan deals, which the syndicated market currently cannot,” Erwin Mock, Thoma Bravo’s head of capital markets, told Reuters.
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