Private Equity's Post-Pandemic Normalization: A Conversation with Seth Boro

Private Equity Market Shifts

• 💡 The private equity landscape has shifted significantly since the 2021 boom, driven by higher interest rates and increased investor skepticism.
• 🚀 The period saw a surge in deals during the post-pandemic rebound with cheap leverage, followed by a slowdown due to rising interest rates and cautious stock market investors.
• ⚠️ A "pig moving through a python" analogy describes private equity funds struggling to digest deals and find buyers at expected valuations.
• 💰 Limited partners (LPs) are hesitant to invest in new funds while awaiting returns on existing ones, creating an impasse.

Thoma Bravo's Strategy and Resilience

• 🎯 Thoma Bravo, a firm specializing in software and technology, has maintained an active deal cadence by focusing on its core strategy.
• 📈 The firm has raised new funds, including a dedicated European fund, and continues to invest in enterprise software.
• 🛠️ Thoma Bravo's strategy emphasizes partnering with innovators, delivering operational and investment results through strong operations and leadership.
• 💰 The firm's capital structures are not heavily leveraged, making them less sensitive to interest rate fluctuations.

Navigating Market Cycles and Valuations

• 🔄 The market has moved from a "free money" era to a more measured approach, with private equity becoming more risk-averse.
• 📉 While credit is available, the market has shifted from lending based on recurring revenue multiples to a focus on cash flow and business fundamentals.
• 📊 Thoma Bravo's portfolio companies typically have capital structures that are heavily equity-focused, characteristic of growth buyouts.
• 🧩 The bid-ask spread persists in the private market, with sellers often seeking prices based on past high valuations, even if companies have performed well.

The Impact of AI on Software and Private Equity

• 🤖 Generative AI is a new, significant consideration, with every company in Thoma Bravo's portfolio having an AI strategy.
• 🚀 Incumbents with established customer relationships and operational expertise are expected to be major winners in the AI phase.
• ⚠️ While AI may automate some workflows, it also creates new threat vectors, particularly in cybersecurity, leading to market expansion.
• 💡 Fundamental operating principles remain crucial, with a focus on innovation, customer value, and adapting to new technologies.

Future Outlook and Operational Excellence

• 📈 Dividend recapitalizations are occurring due to strong credit markets and companies generating significant cash flow.
• 🔍 Finding buyers has become a more time-consuming process, requiring strategic rationale and business plans.
• ✅ Thoma Bravo emphasizes sticking to its core strengths: helping great businesses operate best-in-class, including growth, acquisitions, and innovation.
• 🌟 Operational excellence and a long-term view are highlighted as consistent winning strategies in the complex and evolving market.