To employees of Tibco - as with any private equity buyout, Vista's goal is to shed the weight, reduce expenses, and streamline the company and then sell it for a higher price later. What that means for you is that your company will most likely be moved to Texas, as is what happened when Vista bought my last company this year. They will also slowly lay off workers every few months, and morale will most likely drop. So get out those resumes.
>What that means for you is that your company will most likely be moved to Texas, as is what happened when Vista bought my last company this year.
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.
Yea after experiencing the buyout and watching it unfold over a year it got me more interested in how these deals work. One major question is - is the cost savings of hiring a worker in Texas with less experience at a 30% savings worth it if you're losing a few years of knowledge of internal workings and products? Very debatable and probably changes position by position, company by company. Also a buyout has a significant impact on general morale as everyone is now job hunting and wondering which week the layoff announcement is coming.
>One major question is - is the cost savings of hiring a worker in Texas with less experience at a 30% savings worth it if you're losing a few years of knowledge of internal workings and products?
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.
I would suggest "Investment Banking" by Rosenbaum and Pearl. Very informative book that gives a great overview of valuation techniques used in investment banking and private equity as well as discusses the deal process using examples. It requires some accounting knowledge.
I'm not saying there are no inefficiently run companies in the world, but these PE buyouts all seem to follow the same plan.
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 wonder what they even develop internally at Tibco. They seem like they are in that spot between producing their own software and acquiring products. A solution with Tibco means integrating multiple expensive products, some of which they acquired (loglogic, spotfire, jaspersoft). I wouldn't be surprised if the P/E firm only keeps business services and sales
Second that. Vista Equity Partners is based in Austin and has a reputation for buying companies and moving them to Texas. These are the companies they own at the moment: http://www.vistaequitypartners.com/companies
I personally met someone last month who quit one of these companies to avoid moving to Austin.
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[ 3.3 ms ] story [ 52.0 ms ] threadI'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."
That's a broad brush that you're using there.
I personally met someone last month who quit one of these companies to avoid moving to Austin.