What happens when private equity buys your competitor?

Post by padseeker » Sat, Jun 04, 2016, 6:31 PM UTC

Sacho wrote: post #28

padseeker wrote: post #8

So relevant info - I used to work at a Vista Equity owned company, one that was eventually sold to Oracle. Vista was run by a bunch of MBAs that believed that had the best insight on how a to run a software company, including what technology to use. We were evaluating better tools for version control as we had been using Subversion. We were seriously considering Git, Jira, and Github. Then Vista decided they knew wha…

> We were seriously considering Git, Jira, and Github. You were evaluating Git, Not VCS and Git? Looks like your decision was already made. It seems like you were looking for a project management tool as well, and TFS is both similar to subversion(easy transfer of knowledge) and fills that need. Why Vista's decision was obviously bad is not clear to me.

For the record I had no input in this decision. When I say we I was saying we as a company.

If they had asked me I would not hesitate to at least vote for git. I've used Subversion enough and I have always found the process of merging a branch as absolutely painful. I've never used VCS so I'm not qualified to evaluate it. As for a project management tool I don't know enough to make a compelling case against TFS. I can say that (a) I hated using it and (b) I was not along. It's been so long since I last used but I am thankful I don't anymore.

As someone who has used Microsoft TFS and its suite of tools versus using github or gitlab as well as jira for issue management I can tell you that git/github like tool/jira is preferable to subversion/TFS. I am willing to wager a large sum of money that most of the team members at the vista owned company would have agreed. And I am nearly certain TFS and Subversion was more expensive than the other tools.

You know why I think Vista's decision is bad? MBAs and finance people should not be dictating what tools should be used technical/coding/project managers. That is dumb. I'm glad you like whatever tools you use, what's with the snide attitude?

Post by bigbossman » Sun, Jun 05, 2016, 10:25 PM UTC

dmix wrote: post #22

bigbossman wrote: post #18

If a PE shop buys your competitor, you should rejoice. PE firms primarily generate returns through (1) debt repayment from free cash flow, (2) multiple expansion, and (3) operating improvements. Because of #1, PE firms like annuity-like businesses with predictable cash flow. A ventured-backed startup doesn't need to worry about #1, and therefore can focus all their internal efforts on #3. (If multiples expand, then t…

Why is "(1) debt repayment from free cash flow" appealing vs VC growth? I'm not familiar with that term. A quick search only gave me pages filled with even more finance jargon.

Here's an example that helps explain how this works. When people talk about financing engineering, a lot of the nuance is figuring out how to manipulate the "capital structure" like this.

A) Imagine buying a $100,000 house and borrowing $80,000 from the bank to finance it. Then you rent out the house for a bit more than the total cost of the mortgage, taxes, and other expenses. Eventually the value of your $20,000 investment will grow based on a combination of (1) more ownership from the house and (2) potential market appreciation on the total value of the house.

B) Compare this to buying a $100,000 house but getting someone to co-invest $80,000. In this case, your equity is fixed at 20% (vs 80% for the co-investor). The value of your investment will depend on your share of any intermittent cash flows from rent and market appreciation of the house.

Debt (A) is attractive if there is certainty you can finance the debt payments, but that's obviously not the case for many startups.

Re: What happens when private equity buys your competitor?

Re: What happens when private equity buys your competitor?