Private equity's $16.5 billion buyout of Citrix Systems apparently has overcome a $15 billion debt financing challenge, and the Citrix merger into Tibco Software appears on track to close in late September 2022, according to an SEC filing.
Still, the debt sale required more work than originally expected because of rising interest rates, Bloomberg reported in August 2022.
Read between the lines and there's an important lesson here for MSPs, MSSPs, technology and cybersecurity companies. Indeed, private equity firms may appear to have endless piles of cash ready for more acquisitions. But the reality is quite different in many deals -- where PE firms and bankers are working overtime to adjust their financial plans for buyouts.
Private Equity and Debt Financing: What MSPs Can Learn From Citrix Deal
The reality check: Private equity firms had $1.78 trillion in dry powder as of February 2022, Preqin estimates. That's a massive financial stockpile. However, many private equity deals involve debt financing, and that debt financing could get harder to find amid rising interest rates, Wall Street volatility, falling SaaS company market valuations, and concerns about a recession.
Think of it this way: Evergreen Coast Capital (an affiliate of Elliott Management) and Vista Equity Partners (the former owner of Datto) announced plans to acquire Citrix for $16.5 billion in January 2022. But fast forward to July 2022, and Bloomberg described how the changing economic climate was influencing the deal:
"Banks committed to the financing in January , but since then, the cost of borrowing has increased significantly above the maximum yields they promised on the debt, leaving them on the hook for about $1 billion in losses. Issuance of new debt has slowed to a trickle, and almost all deals that are getting done are pricing at steep discounts to par."
In a separate Bloomberg report, the news service said:
"Big changes to the original financing plan may still be necessary in order to reach a broader group of investors as credit conditions remain challenging, said the people, who asked not to be identified because they’re not authorized to speak publicly."
MSP M&A: Ask Where's the Money Coming From
Advice for MSPs:
- Stay humble;
- keep growing your EBITDA and annual recurring revenue (ARR); and
- if a potential buyer comes knocking on your business door... be sure to ask exactly how they plan to finance the deal.
Story originally published July 21, 2022. Updated multiple times thereafter with additional insights.
