Vista Equity Sets $10 Billion Upper Limit For New Fund
Vista Equity Partners Fund VI has attracted investor demand in excess of the fund’s hard cap
Vista Equity Partners, the private-equity firm that recently took software company Solera Holdings Inc. private, set a $10 billion upper limit for its sixth flagship buyout fund, said people familiar with the matter, potentially making it one of the largest technology-focused funds ever raised.
Vista on March 11 held an initial closing for the new fund, securing more than the $5.78 billion it raised for its fifth fund in 2014, said one of the people familiar with the fundraising.
Vista Equity Partners Fund VI LP has attracted investor demand in excess of the fund’s $10 billion hard cap.
At $10 billion, Vista’s newest fund would nearly match the $10.3 billion tech buyout firm Silver Lake raised in 2013 for its fourth flagship buyout fund.
Although Vista has targeted $8 billion for its new fund, up until February it hadn’t set an upper limit on the fund’s size. Typically, investors prefer private-equity firms set limits, or caps, on the size of their funds out of concern firms would be tempted to raise more money than they could prudently invest. Once a firm establishes a fund’s hard cap in legal documents, it generally can’t raise more than that amount without obtaining investor consent.
The new fund’s initial closing gives Vista fresh capital to pursue new deals as technology continues to draw private equity’s attention. Private-equity firms in 2015 backed 189 U.S.-focused technology deals totaling $42.7 billion, according to data provider Dealogic Ltd. In the previous year, private-equity firms backed 196 such deals totaling $28.66 billion.
Austin, Texas-based Vista is led by Chairman and Chief Executive Robert Smith and President Brian Sheth and has risen in prominence as an investor in software and technology-enabled companies. It generally backs companies with enterprise values of between $400 million and $5 billion, and its portfolio includes such companies as business software provider Tibco Software Inc. and cybersecurity company Forcepoint LLC.
Vista in March completed a take-private deal for Solera, which provides software for the automobile claims-processing industry. The deal, which was expected to be valued at $6.5 billion including debt, was one of the largest leveraged buyouts announced in 2015.
Vista’s 2014 flagship fund, Vista Equity Partners Fund V LP, is too early in its life to judge its performance. Vista Equity Partners Fund IV LP, launched in 2011, generated roughly 1.7-times its invested capital and around a 21.4% net internal rate of return as of Sept. 30, according to data from the Oregon Investment Council.
Vista isn’t the only tech-focused buyout firm raising capital for a large fund. Thoma Bravo, which owns software developer Compuware Corp., is seeking about $7 billion for Thoma Bravo Fund XII LP, according to a February Securities and Exchange Commission filing. Thoma Bravo focuses on software and technology-enabled services companies, but can also invest across a broad range of sectors.
As the two private equity shops battle for investor dollars and deals, questions are mounting as to whether or not there are enough investment opportunities these days to accommodate both players, people in the industry said. Vista Equity typically runs into Thoma Bravo as a competitor in three or four deals each year, two people with knowledge of the firms said. That is a small minority of the deals each firm looks at and closes annually, the people added.
As deal competition intensified in 2015, the aggregate value of announced private equity-backed information technology buyout deals hit $140 billion, the highest amount since 2006, according to research firm Preqin Ltd. IT deals made up 34% of the total value of private equity-backed buyouts in 2015, up from 13% in 2014, data from Preqin shows.