4 ms·

How do these private equity firms no one has ever heard of get $4.4B to make such an acquisition?

lesuorac 2y ago
That's actually a pretty genius espionage strategy. Don't bother to set-up a fake-ish company to say sell secure phones to cartels. Just wait until somebody does and then buy them out.
- deleted 2y ago
  [deleted]
toomuchtodo 2y ago
They pitch investors on a strategy with a prospectus and then do a capital call when they've identified an acquisition target. The investments are illiquid (and potentially levered with debt), and you typically have to be an accredited investor or a fund manager to get access.
- calmbonsai 2y ago
  Yup. I call these a "trigger funds". There are also entire non-investment-registered regular C-corps (e.g. Flow) that are, effectively, also "trigger funds". 1. You setup a pool of capital with a small board of all-insiders that are also investors + one token "independent". Usually the token "independent" is also the "face". 2. That pool of capital registers as a normal C-corp in Delaware with the stated "trigger" as a vaguely worded business model. 3. To maintain the illusion of C-corp, you immediately get into a low-capital-requirement "ancillary" slim-margin commodity business. The sole purpose of the "ancillary" business is to have a balance sheet with some assets, debits, credit, and cashflows on the books for auditing, PR, and tax purposes. 4. Whenever the "trigger" happens, all that sleepy capital suddenly awakens for the actual business activity--usually rampant acquisitions and brand consolidation. 5. If the "trigger" never happens, then the business is auto-dissolved with a known prior dissolution agreement between the original partners. By the way, this is how SPACs were done before formal SPAC regulation. Since so many SPACs failed, this practice of a reversion to non-SPAC SPACs has had a significant upswing.
whimsicalism 2y ago
backing by a big bank or other private financier
btown 2y ago
https://techstrongitsm.com/features/turn-rivers-4-4-billion-acquisition-of-solarwinds-could-signal-more-it-related-deals/ https://techstrongitsm.com/features/turn-rivers-4-4-billion-... provides more context here: "Turn/River, which specializes in optimizing software companies and cloud-based software-as-service companies, already has investments in cloud-based IT company Paessler and cybersecurity company Tufin." More generally, this is a leveraged buyout: the acquiring firm uses debt from banks and other sources to pay for most of the acquisition. That debt then becomes the responsibility of the acquired company to service - often pushing the company towards cost-cutting measures and an emphasis on harvesting short-term value from accounts. This is sometimes done in an effective and customer-centric way... but that's not always the case. It's hard to know what the outcome will be here.
- calmbonsai 2y ago
  For two classic examples that are literally the subject of business school case studies, see Beatrice Foods (https://en.wikipedia.org/wiki/Beatrice_Foods https://en.wikipedia.org/wiki/Beatrice_Foods) and more recently the conglomerate that is/was Altria (https://en.wikipedia.org/wiki/Altria https://en.wikipedia.org/wiki/Altria).
- BLKNSLVR 2y ago
  Paessler were purchased in May 2024, and by July 2024 they were moving to a subscription, rather than perpetual licensing model, which came with a 100%-ish price increase. Start the process for a SolarWinds alternative now. https://www.theregister.com/2024/07/05/paessler_brings_in_subscription_licensing/ https://www.theregister.com/2024/07/05/paessler_brings_in_su...
jordanb 2y ago
Mostly they're friends with people who control large institutional funds: pensions, endowments, etc.
xyst 2y ago
Corporate welfare, LIBOR loans, over leveraging.
financetechbro 2y ago
Turn/River is well known in the space if you know about it. They’ve raised like over $100bn across all their funds. There are hundreds of these firms that you don’t know about and may never know about. They’re not hiding or anything, just the nature of the PE business to work in the background.

That's actually a pretty genius espionage strategy. Don't bother to set-up a fake-ish company to say sell secure phones to cartels. Just wait until somebody does and then buy them out.

deleted 2y ago
[deleted]

toomuchtodo 2y ago

They pitch investors on a strategy with a prospectus and then do a capital call when they've identified an acquisition target. The investments are illiquid (and potentially levered with debt), and you typically have to be an accredited investor or a fund manager to get access.

calmbonsai 2y ago
Yup. I call these a "trigger funds". There are also entire non-investment-registered regular C-corps (e.g. Flow) that are, effectively, also "trigger funds". 1. You setup a pool of capital with a small board of all-insiders that are also investors + one token "independent". Usually the token "independent" is also the "face". 2. That pool of capital registers as a normal C-corp in Delaware with the stated "trigger" as a vaguely worded business model. 3. To maintain the illusion of C-corp, you immediately get into a low-capital-requirement "ancillary" slim-margin commodity business. The sole purpose of the "ancillary" business is to have a balance sheet with some assets, debits, credit, and cashflows on the books for auditing, PR, and tax purposes. 4. Whenever the "trigger" happens, all that sleepy capital suddenly awakens for the actual business activity--usually rampant acquisitions and brand consolidation. 5. If the "trigger" never happens, then the business is auto-dissolved with a known prior dissolution agreement between the original partners. By the way, this is how SPACs were done before formal SPAC regulation. Since so many SPACs failed, this practice of a reversion to non-SPAC SPACs has had a significant upswing.

whimsicalism 2y ago

backing by a big bank or other private financier

btown 2y ago

https://techstrongitsm.com/features/turn-rivers-4-4-billion-acquisition-of-solarwinds-could-signal-more-it-related-deals/ https://techstrongitsm.com/features/turn-rivers-4-4-billion-... provides more context here: "Turn/River, which specializes in optimizing software companies and cloud-based software-as-service companies, already has investments in cloud-based IT company Paessler and cybersecurity company Tufin." More generally, this is a leveraged buyout: the acquiring firm uses debt from banks and other sources to pay for most of the acquisition. That debt then becomes the responsibility of the acquired company to service - often pushing the company towards cost-cutting measures and an emphasis on harvesting short-term value from accounts. This is sometimes done in an effective and customer-centric way... but that's not always the case. It's hard to know what the outcome will be here.

calmbonsai 2y ago
For two classic examples that are literally the subject of business school case studies, see Beatrice Foods (https://en.wikipedia.org/wiki/Beatrice_Foods https://en.wikipedia.org/wiki/Beatrice_Foods) and more recently the conglomerate that is/was Altria (https://en.wikipedia.org/wiki/Altria https://en.wikipedia.org/wiki/Altria).
BLKNSLVR 2y ago
Paessler were purchased in May 2024, and by July 2024 they were moving to a subscription, rather than perpetual licensing model, which came with a 100%-ish price increase. Start the process for a SolarWinds alternative now. https://www.theregister.com/2024/07/05/paessler_brings_in_subscription_licensing/ https://www.theregister.com/2024/07/05/paessler_brings_in_su...

jordanb 2y ago

Mostly they're friends with people who control large institutional funds: pensions, endowments, etc.

xyst 2y ago

Corporate welfare, LIBOR loans, over leveraging.

financetechbro 2y ago

Turn/River is well known in the space if you know about it. They’ve raised like over $100bn across all their funds. There are hundreds of these firms that you don’t know about and may never know about. They’re not hiding or anything, just the nature of the PE business to work in the background.