Private Equity and the Post-IPO Life of Enterprise Tech Companies

This is the third and final part of an essay about the role that private equity (PE) firms have been playing acquiring publicly traded enterprise software companies. The first part of the essay focused on some of the recent high profile acquisitions of PE firms such as Jive, Rackspace, Tibco, Qlik, Marketo and several others. The second part examined some of the factors that make public enterprise tech companies an attractive target for PE firms. Today, I would like to explain our analysis by highlighting some examples of public companies that could be at risk of becoming a target for PE firms.

A PE-View of Public Enterprise Technology Markets

Public enterprise tech markets are fundamentally different today than a few years ago. As explained in our previous article, publicly traded enterprise tech companies are operating ni environments on which technology trends are constantly changing diverting the attention of investors. More importantly, many enterprise tech companies are actively facing competition from cloud platform incumbents such as Amazon, Microsoft or Google which are rapidly racing to provide a large percentage of the features required by modern software applications. Think about, you are a publicly traded cloud service company providing a specific capability and you are competing against AWS, Azure or Google Cloud that not only provide that feature but an entire suite of cloud services and are not afraid to drive the price of the service close to zero in order to gain market share. That’s not a great picture when you need to please investors quarter-to-quarter.

In that climate, PE firms offer many benefits to troubled enterprise tech companies. For starters, PE firms have become masters at identifying under-valued public enterprise tech companies that could be acquired at a discount even if that represents paying a premium compared to their current public market valuation. Additionally, many PE firms such as Vista or Thomas Bravo have developed extremely thoughtful practices in enterprise tech markets. That level of expertise, together with their operational and financial engineering capabilities can be of great help for enterprise tech companies looking to restructure away from the pressure of public markets.

Understanding those dynamics, let’s look at some examples of public enterprise tech companies that could become the target of PE firms as well as some that, I believe, are safe from now ;)

Some Enterprise Tech Companies that can Become Attractive PE Targets

This section does not intend to provide an exclusive list. Instead, I am just trying to give some examples of publicly traded enterprise tech companies that, based on our thesis, can be on the radar of PE firms.

— MobileIron: MobileIron’s tock has been under an incredible amount of pressure lately but the company still operates on a massive market which doesn’t have many relevant players anymore.

— Hortonworks: Hortonworks has regularly underperform as a public stock and it faces pressure from incumbents such as IBM, Amazon, Google as well as recently IPO Cloudera.

— Okta: Okta ad a spectacular debit in public markets and it doesn’t have enough trading history to make it a target of PE firms. However, Okta fits our thesis because it faces direct competition in the identity management space from cloud platforms such as AWS, Azure or Google Cloud. Additionally, the acquisition of Okta’s competitor Ping Identity by a PE powerhouse sets a strong precedent.

— Tableau: Tableau continues facing strong competition from incumbents such as Microsoft, Google and Amazon and the stock has been somewhat irregular in its performance. Also notice that Tableau’s competitor Qlik was recently acquired by a PE firm which could serve as an indicator for how to structure a potential deal.

Now let’s look at some examples of publicly traded enterprise tech companies that are safe from PE firms for now.

— Atlassian: The Australian company stock has been flying high and is the undisputed incumbent in the application lifecycle management and collaboration space.

— Mulesoft: Recently IPO Mulesoft has a lot of room fro growth as a public stock. Mulesoft has been regularly out-innovating and out-performing competitors and is free from pressure from many incumbents in the enterprise integration space (Oracle, IBM might be the exception).

— Twilio: Twilio has had an incredible run as a public stock and is operating on a space on which the cloud incumbents don’t have a relevant presence. Twilio has a bright future as an independent company.

CEO of IntoTheBlock, Chief Scientist at Invector Labs, I write The Sequence Newsletter, Guest lecturer at Columbia University, Angel Investor, Author, Speaker.

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