new York Orlando Bravo is hardly known in Germany, but the investor is a phenomenon in the USA. With his private equity firm Thoma Bravo, he specializes exclusively in software companies. Now he predicts a future “in which there will be many publicly traded software companies that are orphaned”. In this environment, Bravo senses its great opportunity – also for deals in Europe.
With its investment philosophy, Bravo is something of the anti-hero in the land of unicorns. He selects potential acquisition targets based on technology, not growth.
Bravo became the first Puerto Rican to become a billionaire. His investment company Thoma Bravo, founded in 2008, manages customer funds of 122 billion dollars, making it one of the largest in the USA.
The 52-year-old could also become better known in Germany with his philosophy. Because in an interview with the Handelsblatt, Bravo reports on his ambitions for European deals.
In the past ten years, tech companies have grown up in an environment “in which capital was available almost free of charge. Many of them are structured in such a way that they will always be unprofitable – and most of them will not be able to change that,” the renowned tech investor wrote on Twitter.
The end of the growth era
For a long time, what counted most for venture capital investors was how quickly their portfolio companies grew, even if they were losing billions in the process. As a result, as long as Federal Reserve (Fed) interest rates were low, companies with high growth rates could quickly increase their valuations many times over.
“It used to be that the companies that grew fast and didn’t make money traded better than those that made profits. That was a sign of a bubble,” says Bravo. But the tide has turned. “Growth no matter what the price – that era is over.”
In times of rapidly rising key interest rates, “investors now want to see profits and sustainable business models. This is also reflected in the share prices of many tech companies that are in the red.”
This development strengthens Bravo’s investment strategy. His private equity house buys mostly unprofitable software companies and restructures them to become “highly profitable growth engines,” as Bravo puts it.
“Now we have an opportunity to buy companies at significantly lower valuations, especially when it comes to market leaders. There hasn’t been an opportunity like this for a long time,” enthuses the investor. In June, under these conditions, he took over British SAP competitor Anaplan for $10.4 billion.
Current focus on cybersecurity companies
He sees further opportunities in cybersecurity companies and grabs them. For example, on Tuesday he announced the acquisition of Forge Rock for $2.3 billion. The San Francisco company specializes in identity management solutions. Forge Rock went public just last year and had lost around 70 percent of its value by the time the takeover was announced.
What exactly Thoma Bravo intends to do with the company is still unclear. However, it is the third firm in the space to buy the private equity house this year. It paid $6.9 billion for Sail Point in April and acquired Ping Identity for $2.8 billion in August.
Bravo was also involved in the considerations about the Twitter takeover by Tesla boss Elon Musk, as can be read in court records from Delaware. Chats between Musk and his banker at Morgan Stanley indicate that Bravo did not appear to want to be involved.
“It’s funny Orlando turned it down,” Musk wrote to his banker. “Please let him know I’d like to talk to him and understand why he turned it down.”
In the interview, Bravo only says about this cause: “No comment”. Commenting on potential deals, whether they happen or not, “is not good for us.” Just so much: “If the deal actually goes through, it will be good news for everyone, including the employees.”
He is particularly interested in “software companies whose solutions are needed by large banks, in industry, in the mobility sector and elsewhere,” explains Bravo. “The world is becoming more and more digital. We like solutions that are used in the core operations of a company, not just in the back office.”
The market leaders are often based in the USA and not in Asia, Latin America or Europe. Nevertheless, European companies are interesting, emphasizes Bravo. “We love Europe because there are great software companies there. If we invest there, we don’t do it because of the weakness of the euro or the pound or the lower valuations, but because of the technology.”
And Germany? Recently, Thoma Bravo has expanded into London – “the most logical first place in Europe,” as the founder puts it. But: “The German office is in the works. That is the logical next step.”
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