Thoma Bravo lost out in race for coveted tech group amid antitrust fears
Qualtrics eventually sold for $12.5bn to Silver Lake and CPP in largest leveraged buyout of year
Thoma Bravo, the acquisitions-hungry private equity group, lost out in the race to buy a highly prized technology company that was eventually sold for $12.5bn amid fears US authorities would stymie the deal on competition grounds.
Thoma Bravo had hoped to buy Qualtrics, a software group focused on customer service, and merge it with Medallia, a rival company that it already owns, according to three people briefed on the matter.
However, Qualtrics was eventually sold to Silver Lake and Canada’s largest pension fund, CPP, for $12.5bn last month in the biggest US leveraged buyout of the year. Silver Lake’s bid triumphed even though Thoma Bravo had considered making a higher offer, the people said.
The unsuccessful pursuit underscores the heightened scrutiny that buyout groups are facing from regulators in Washington since Joe Biden became president in 2020. The Department of Justice and Federal Trade Commission have pledged to take a more aggressive stance towards private equity dealmaking.
“The regulatory environment is having an impact,” said Charles Rule, a lawyer at Rule Garza Howley who specialises in antitrust matters. “In the last two or three years the uncertainty over antitrust has led to certain deals not going forward that would have otherwise moved forward.”
Private equity groups started circling Qualtrics in January after its biggest shareholder, German technology conglomerate SAP, said it was looking to sell its stake in the Nasdaq-listed company, worth about $7bn at the time.
SAP’s announcement effectively put the entire company in play as a “take-private” target, generating a flurry of interest from buyout groups. Silver Lake and Thoma Bravo emerged as the frontrunners, the people said.
Thoma Bravo was able to offer slightly more than Silver Lake and CPP because merging Qualtrics with Medallia would have allowed it to make significant cost savings, the people added.
But Qualtrics ended up accepting the Silver Lake offer amid fears that regulators might scrutinise the deal during a lengthy review.
“It is a giant loser if a deal gets hung up on a review,” said one private equity executive.
The Qualtrics deal offers a rare glimpse into the chilling effect that regulators in the Biden administration are having on dealmaking by using the bully pulpit to torpedo putative takeovers before a formal offer is made.
“There is no success greater for us than deterrence,” Jonathan Kanter, head of the DoJ’s antitrust unit, told a conference last month. He said that one way of deterring deals was to commence a formal review, “but I can tell you, there are many more non-public abandonments”.
In an interview with the Financial Times last year, Kanter warned that the DoJ would crack down on private equity groups rolling up swaths of the American economy.
Earlier this year, the DoJ issued a so-called second request review on Thoma Bravo’s planned takeover of cyber security company ForgeRock. The review requires the firm, which manages more than $120bn in assets, to share information with the regulator by May.
Other private equity groups considered bidding for Qualtrics, said two sources briefed on the matter, including Hellman & Friedman and Permira. The pair already own Genesys and Zendesk, which operate in a similar space.
Thoma Bravo, Hellman Friedman, Permira and Silver Lake declined to comment. Qualtrics did not respond to a request for comment.