Thoma Bravo Holds Court in Software Private Equity

If the private equity world had royalty, Carl Thoma would definitely be a prince of the realm. He has been in the investment game long enough to have shaped the way business is being done and he shows no signs of slowing down now. His firm is credited for pioneering the very profitable ‘buy and build’ strategy in the 1980s and they continue to use these tactics to keep his IRR right where his investors want them.

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Carl Thoma graduated from Stanford University with an MBA before moving on to First Chicago Equity Group. During his tenure, he built one of the largest and most active private equity firms in the country. After making a name for himself, Thoma joined forces with his investing compatriot Stanley Golder to start a buyout firm, Golder Thoma & Co (GT&C), in 1980.

During the next decade, GT&C used their ‘build and buy’ strategy – the practice where one company is used as a base that is then added onto to create more growth – to grow their business. While it could be considered the slightly warmer and fuzzier alternative to the hostile takeover, the strategy has been successful since leveraged buy-outs were the avant-garde trend in the 1980s. They took on two additional partners, Bryan Kressey and Bruce Rauner, in that time and became known as GTCR.

Despite their wildly successful early days, a division amongst the upper ranks meant that some good things must come to an end. In 1998, Thoma and Kressey departed the partnership to pursue their divergent destiny. They opened their own shop with the intent to continue Thoma’s original consolidation strategy – they targeted mid-market companies they could purchase as a platform they could then build onto to drive profitability. Orlando Bravo came onboard as a name partner prior to Kressey moving on in 2008 and, thus, the firm Thoma Bravo was born.

They typically favor tech sector investments ranging from SaaS companies to medical device makers. Despite their mid-market party line, some of their capital commitments have started to climb into the ten digits. They haven’t shied away from big ticket deals like their ambitious $2.1 billion acquisition of Imperva, a cybersecurity firm, in 2018 and their $3.7 billion buy of online mortgage platform provider Ellie Mae in 2019.

Thoma Bravo has raised over $30 billion in capital commitments and the four funds prior to Fund XII have net internal rates of return ranging between 21 and 38 percent. Success has been a blessing, the firm announced their latest equity fund hit a hard cap at $12.6 billion after only a few months.

“It was as quick a fundraising as we’ve had for the last four funds,” Orlando Bravo, managing partner, said in an interview. “We launched the fund in March and after six months we were oversubscribed.”

Bravo has been watching the markets and worries that with the amount of money being funneled into private equity by eager institutional investors, there might not be enough promising deals to go around – at least those ones that will yield the ROI their partners are expecting. He pointed to high valuation expectations as the biggest hurdle to meeting their targets.

“It is going to be very difficult to generate those spectacular returns (of prior funds),” Bravo added. “At the same time, and we have shared this with our limited partners, we are very confident that we will continue to significantly outperform.”