Buyout barons pay up in big tech prints

Contact: Brenon Daly

Once again, the buyout barons are paying up in their big bets. The latest example of private equity (PE) largess came in the proposed SolarWinds take-private, with Silver Lake Partners and Thoma Bravo teaming up on a $4.5bn offer. That’s a fairly steep price for a company growing sales in the high teens to about $500m this year. On a cash-flow basis, SolarWinds is getting a vertigo-inducing valuation of 27x EBITDA.

While SolarWinds’ valuation is certainly richer than other significant PE deals, this year has nonetheless seen financial buyers ready to pay above-market prices. For instance, Informatica, which put up about $1bn in sales, went private earlier this year for more than $5bn. On a smaller scale, we understand that’s exactly the same valuation Thoma Bravo paid in its purchase of privately held healthcare analytics vendor MedeAnalytics.

Altogether, the PE shops involved in the 10 largest transactions in 2015 have paid an average of 3.4x trailing sales, according to 451 Research’s M&A KnowledgeBase . (To be clear, that’s based on the enterprise value of the targets.) For comparison, that’s a full turn higher than the average valuation for big PE prints over the previous three years. Of course, buyers in the previous years didn’t necessarily have to worry about an imminent raise of interest rates, which might be spurring some of the activity now.

Significant PE deal valuations, 2012-15*

Year Average enterprise value/sales ratio Select transactions
YTD 2015 3.4x SolarWinds LBO, Informatica LBO, Solera Holdings LBO
2014 2.9x TIBCO LBO, Riverbed LBO, Compuware LBO
2013 2x Dell LBO, BMC LBO, Active Network LBO
2012 2.4x Getty Images, Misys LBO, LBO

Source: 451 Research’s M&A KnowledgeBase *Average enterprise value-to-sales ratio of the 10 largest transactions in each of the years