Austin, TX-based private equity group Vista Equity Partners has a long-standing reputation as one of the best in its class within the enterprise software sector.
When founder Robert F. Smith decided to launch his own shop with co-founder Brian Sheth, he was working with Goldman Sachs’ technology team, where he reportedly advised Apple on its decision to rehire Steve Jobs as CEO. Later at Vista Equity, Smith formulated his own unique style of investing, setting the shop apart from the pack and building a runaway success story.
Hyper-Focus on Enterprise Software Rakes in Stellar Returns
Vista holds over $30 billion in cumulative capital commitments throughout the software, data and overall technology space. As a value-add investor, Vista contributes professional expertise and multi-level support to help grow its portfolio companies to their full potential.
Within its first 12 years of operation, Vista managed to close three buyout funds amounting to nearly $6 billion in commitments, with each vehicle securing an internal rate of return (IRR) over 22% and in the top quartile of their respective benchmarks. It’s a track record more than worthy of applause in the PE space. So how did Smith manage to build one of the most successful PE firms in the world in such a short period of time?
Compared to its private equity peers, Vista has formed a more specialized niche within the enterprise software sector, particularly targeting SaaS companies and information service and tech-enabled businesses providers. The Austin-based shop pursues the full range of deal types such as private buyouts, spinouts, growth investments and LBOs.
From the get-go, Vista developed a playbook carefully detailing how to maximize their returns and create value. By deftly structuring their investments, to recruiting high caliber personnel and building platform technologies through a series of acquisitions, Vista consistently saw sustained revenue growth and superior EBITDA margins in its portfolio companies, yielding high valuations upon exit.
Starting out with Smith’s expertise in enterprise software from Goldman, Vista dove into the space amassing larger pools of capital as it established itself through stellar returns to limited partners. Smith’s long-time partner, Vista President Brian Sheth, focuses on professional development, leveraging his experience with tech buyouts at Bain Capital and M&A at Goldman.
Operating Principal Vincent L. Burkett came on board in 2011 after serving as CEO of business software company Ventyx. In 2008, Principal Alan Kline returned to Vista where he held a position as VP until 2006. In the interim he took up a two-year position with VC firm Accretive. Kline now co-heads the Vista Foundation Fund, responsible for investing in the lower middle market. With the help of its qualified team of deal makers, the average company Vista has invested in is growing at just under 20% annually, according to the Wall Street Journal.
While Vista had been no stranger to big ticket deals before 2016, last year saw the firm kick up its commitments to mega-investments. In March, Vista joined Koch Industries and Goldman Sachs in taking risk and asset management software provider Solera private for $6.5 billion, marking the largest deal in firm history by surpassing its 2014 acquisition of TIBCO Software for $4.3 billion. Later in June, Vista joined Bain Capital in the takeover of insurance software provider Vertafore for $2.7 billion. In August, the firm finalized a $1.65 billion deal to take cloud-based event management software company Cvent private.
Vista’s exits have been outnumbered and overshadowed by its pile of 10-figure acquisitions, growing steadily yet not proportional to its surge in investments. In Q2 of 2016, Vista completed the sale of payments processing platform TransFirst to TSYS for $2.35 billon after buying the fintech company for $1.5 billion in 2014.
Earlier this month, Vista closed its largest-ever buyout fund, collecting over $11 billion for its flagship vehicle. The news follows a busy year for the PE shop, which amassed $15.6 billion with five new funds. Vista has also recently built out its credit arm to an investing capacity of nearly $3 billion, closing its second credit fund, Vista Credit Opportunities Fund II, with nearly $1 billion in equity.
While the PE firm has nearly doubled the size of its previous flagship fund at $5.78 billion, sources say the firm will continue to invest an average of $700 million to $1 billion on future deals.
Tech-focused PE funds raked in about $60 billion in 2016, marking the highest level deployable for investment in the segment in at least seven years, according to data provider Preqin Ltd. Yet despite this increasingly competitive software and tech space, Vista’s hyper-focus on enterprise software and shimmering track record of high returns sets the shop on track to continue rapidly increasing the number of deals it makes each year. While before 2007 Vista had not exceeded 19 deals in one year, the firm completed 31 in 2014, 37 in 2015 and 36 in 2016.