Vista Equity to Buy Tibco Software for $4.3B
reuters.com
reuters.com
I'm guessing you worked for ACTIVE Network or Omnitracs. From a PE standpoint it's a great move to cut costs. You can pay less in rent and really save money on salaries through the lower cost of living in Dallas and from many of the employees that will quit because they don't want to move.
Really unfortunate to work for these companies when they are bought and moved though, if you're lucky enough to not get laid off in the first place.
Maybe not. But even though the new employee might not be as productive there is a very real increase in EBITDA from a decrease in expenses. Greater EBITDA leads to greater valuation. Then all you have to do is show consistent mid single digit percentage revenue growth a few years in a row and convince the public markets/equity analysts the whole thing won't fall apart anytime soon and you can cash out in an IPO.
For most PE firms it seems that it's really about hacking the financials. If comparable firms are selling at 15 times EBITDA, and your EBITDA grows from $200M to $250M over several years due to reorg savings and consistent revenue growth, you can rationalize that the company is worth $3.75B ($250M*15) now instead of $3B ($200M x 15).
Very interesting stuff. If anyone reading this works at a PE firm and is willing to let a finance geek pick their brain please give me a shout at my e-mail in my profile.
Buy a company, pay yourself a fat fee. Force the company to borrow a ton of money and pay yourselves back. Start cutting costs. Some is fat, but much of it (like Mark Hurd slashing R&D at HP) is cutting R&D or sales in ways that don't hurt for long enough for the PE firm to cash out. It's a hell of a business model, particularly when it seems like these PE firms often financial engineer themselves into a position where they succeed financially whether the acquired company succeeds or fails.
It seems to often work out well for the PE firm, and much less well for the company, customers, and employees.
"Having already piled companies high with debt in order to buy them, many private-equity funds had their companies borrow even more, and then used that money to pay themselves huge “special dividends.”
..As if this weren’t galling enough, taxpayers are left on the hook. Interest payments on all that debt are tax-deductible; when pensions are dumped, a federal agency called the Pension Benefit Guaranty Corporation picks up the tab; and the money that the dealmakers earn is taxed at a much lower rate than normal income would be, thanks to the so-called “carried interest” loophole."
I personally met someone last month who quit one of these companies to avoid moving to Austin.
That's a broad brush that you're using there.