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Why exits slowed
The firm applies the same urgency, but buying now costs more than it used to, so some of the quick arbitrage is gone. The companies are bigger, liquidity in private markets is lower, and buyers are more selective about the assets they take.
After the firm pushed hard and management did a great job, someone would come and say they wanted to buy it now. That used to happen 80% of the time. Now it might be 30%.
Planning for year ten
So the firm holds longer and builds more value. A buyer in year seven cares about year ten, and over the last eight years Thoma Bravo has planned for years ten and fifteen with the urgency it once brought to year three.
That means screening for CEOs and teams who want to keep working together for ten years, and that group is smaller because people in tech change jobs. The firm buys only about three companies a year in each fund.
Why do higher interest rates slow company sales?
Many acquirers pay for deals partly with borrowed money, so higher interest rates raise the cost of financing a purchase. A buyer with higher costs can afford to pay less, which widens the gap between what sellers ask and what buyers offer. Sale processes stretch out and some are pulled. The Federal Reserve raised its benchmark rate from near zero in March 2022 to a range of 5.25 to 5.5 percent by July 2023.
How do private equity firms exit a company?
There are three standard routes: a sale to a strategic buyer in the same industry, a sale to another private equity firm, or an initial public offering. When all three are slow, some firms use continuation vehicles, in which a fund sells an asset to a new fund run by the same sponsor. Continuation vehicles let existing investors cash out while the firm keeps managing the company. Their use grew substantially in the early 2020s.
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