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PE Panorama: For Thoma Bravo, it’s either bravura or breakneck

By Paul Mackintosh   
June 8, 2020

US private equity firm Thoma Bravo is targeting a US$16.5 billion raise for its next fund, Thoma Bravo Fund XIV. According to S&P Global Market Intelligence, this exceeds the $14 billion original target and is the most ambitious US private equity fund launch in this period, eclipsing the KKR Asian Fund IV’s $12.5 billion.

Furthermore, it comes hard on the heels of the Thoma Bravo Fund XIII which closed in January 2019 at its $12.6 billion hard cap, described by the firm as “the largest pool of capital raised to invest in enterprise software companies”. By October 2019, Bloomberg was already reporting that Thoma Bravo was considering a $15 billion fund for 2020.

Apparently the coronavirus pandemic has not derailed those plans. Should it have? Well, private equity pundits were already predicting a slower year in 2020 before the crisis. The timing of its onset probably made the first quarter raising look better than the rest of the year is likely to be. Fundraising figures for the second quarter are some way off, but are likely to make for interesting reading.

Considering the huge volume of uninvested dry powder already in the market prior to the pandemic, it was already an open question whether the market needed much more investment capital, let alone $16.5 billion. I mean, has the Thoma Bravo Fund XIII even been fully invested yet?

Yes, the company’s sector specialisation may give it an extra edge. Some enterprise software firms may be set to benefit from the crisis, especially those concerned with teleconferencing, remote inventory management, and other services and solutions that benefited from the work-from-home ethos. But the whole post-pandemic New Abnormal is still anybody’s guess, which is hardly a recipe for peaky capital volumes.

Does Thoma Bravo really need that much more money that soon, with other cashed-up players already eager to pounce on keenly priced assets? Plus, with Softbank, technology’s Greater Fool of Last Resort, no longer pushing purchase prices so high, the sector’s valuations may take a specific hit.

SoftBank’s Masayoshi Son, and his recent bathetic self-comparison to Jesus Christ, should stand as a stark warning of the greed and arrogance of technology investors. And then you have the policy and perception headwinds that the asset class is running into.

The environment after the pandemic, and even more after the November presidential election, may not be so favourable to private equity. Potential limited partner investors in Thoma Bravo Fund XIV would do well to remember that – and read the articles on actual versus claimed performance in the private equity industry. Don’t expect miracles from Thoma Bravo.