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Vista to plow big equity check into Tibco Software
By Luisa Beltran
November 7, 2014
Vista Equity Partners isn’t skimping on its buy of Tibco Software.
The technology-focused PE firm is investing $1.6 billion equity into its takeover of Tibco, according to a report from Moody’s Investors Service. The $1.6 billion equity comes to about 38 percent of the transaction’s $4.2 billion value. This is higher than the typical PE equity investment, which ranges from 28 to 30 percent.
Tibco, however, will be highly leveraged. The company’s initial debt is “very high” at about 11x total debt to EBITDA, Moody’s said. That will likely drop about 7x once cost savings, which are expected to be “meaningful,” are included, said Raj Joshi, a Moody’s analyst.
Moody’s also gave Tibco a ‘B3’ corporate family rating because of its “weak financial profile and significant execution risk in achieving planned cost savings over the next 12 to 18 months,” the report said.
“B” ratings are considered speculative and are subject to high credit risk, Moody’s said. B2 is more speculative than B1, while B3 is the most speculative, Moody’s has said.
Regulatory pressure likely spurred Vista to invest 38 percent equity, one private equity executive said. Tibco’s 11x is higher than the 6x leverage ceiling called for in guidelines issued by regulators last year. “Regulators are scolding banks for high leverage multiples, so I’m sure Vista wanted to put in more equity to make it less of an issue,” the source said.
Joshi said Tibco’s 38 percent equity may be a response to the deal’s high purchase price multiples, which are about 17x EBITDA before cost savings. But once cost savings are added, the purchase multiples decline significantly, Joshi said.
Vista Equity announced its buy of Tibco Software in September. The Palo Alto, Calif.-based company provides infrastructure and business intelligence software. Tibco reported $1.08 billion in revenues for the 12 months ended Aug. 31, 2015, Moody’s said.
Vista’s investment is coming from its fifth fund, according to an FTC regulatory filing. However, the private equity firm will likely use another fund in addition to Fund V to back its investment in Tibco, a different source said. Vista Equity Partners Fund V closed last month on about $5.8 billion and is Vista’s largest PE fund to date. Fund V is bigger than its fourth flagship fund, which collected $3.5 billon in 2012. The firm’s third pool raised $1.3 billion in 2008.
Performance data for Fund IV, a young pool, was not available. Vista’s third fund was producing a 31.6 percent IRR and 2.46x total value multiple as of June 30, according to the Oregon Public Employees Retirement Fund.
Tibco declined comment. Vista could not be reached comment.