PE Take-Privates in Software

Introduction

PE take-privates of public software companies represent one of the most important deal types in TMT investment banking. These transactions combine large advisory fees, complex LBO modeling, and multi-faceted deal execution involving leveraged finance, fairness opinions, and special committee advisory work. In 2025, Thoma Bravo alone completed four major SaaS acquisitions: Dayforce ($12.3 billion), Olo ($2 billion), Verint Systems ($2 billion), and PROS Holdings ($1.4 billion). Orlando Bravo closed $42 billion in acquisitions during the year, and PE buyers drove 58% of all SaaS M&A transactions. Understanding how these deals work, from thesis development through value creation and exit, is essential for any TMT analyst.

Public software companies become take-private candidates when there is a gap between their current financial performance and their potential performance under private ownership. Several recurring patterns create this opportunity.

Public market undervaluation of transformation potential. Software companies undergoing transitions (shifting from perpetual licenses to subscriptions, integrating AI capabilities, consolidating acquired product lines) often trade at depressed multiples because public market investors discount the near-term pain of the transition. PE firms see through the transition period to the end state: a higher-margin, faster-growing SaaS business that will command premium multiples at exit.

Software Take-Private

A transaction where a PE firm acquires all outstanding shares of a publicly-traded software company, delisting it from the stock exchange and converting it to private ownership. The PE firm typically pays a 15-30% premium to the pre-announcement share price, finances the acquisition with a combination of equity and debt (4-5x EBITDA leverage for SaaS companies), and implements operational improvements over a 3-5 year hold period before exiting through a sale or re-IPO. Software take-privates are distinct from other leveraged buyouts because SaaS recurring revenue supports higher leverage ratios and because the operational improvement playbook is highly systematic.

Margin underperformance relative to potential. Many public SaaS companies operate at EBITDA margins of 10-20% despite having the gross margin structure (75-85%) to support EBITDA margins of 30-40%+. The difference is often overspending on R&D (speculative product lines that may never generate returns), sales and marketing (inefficient customer acquisition), and G&A (public company overhead, excessive stock-based compensation). PE firms identify these specific cost optimization opportunities and model the margin improvement trajectory that drives their return thesis.

Quarterly earnings pressure constraining long-term decisions. Public companies face relentless pressure to deliver quarterly earnings that meet or exceed analyst expectations. This pressure discourages the kind of difficult, multi-year operational changes that PE firms implement: raising prices aggressively (which may temporarily increase churn), cutting R&D headcount (which may generate negative press), or restructuring the sales organization (which disrupts short-term revenue). Going private removes this constraint, allowing the PE firm to execute its operational plan without quarterly scrutiny.

Thoma Bravo's $12.3 billion take-private of Dayforce illustrates all three patterns. Dayforce had strong HCM (human capital management) recurring revenue with a sticky enterprise customer base, but it was operating at lower margins than its SaaS model could support due to aggressive investment in growth and product development. As a private company, Thoma Bravo can optimize Dayforce's pricing, rationalize its R&D portfolio, and drive the business toward the 35-40%+ EBITDA margins that the SaaS model can sustain.

A proprietary Bain analysis of 33 software buyouts found that 94% projected a median 560 basis points of EBITDA margin improvement over a five-year holding period. The value creation playbook is systematic and repeatable across deals, which is why the same PE firms (Thoma Bravo, Vista Equity, Francisco Partners) can execute it at scale across dozens of portfolio companies simultaneously.

The First 100 Days

The most operationally sophisticated PE firms begin implementing their value creation plan immediately after closing. Thoma Bravo is known for deploying playbook-ready operating partners who can begin executing changes within the first 100 days of ownership. The firm has built this capability across more than 600 software acquisitions, creating institutional knowledge that translates into a repeatable execution framework covering pricing, sales, support, customer success, professional services, and product strategy.

The first 100 days typically focus on the highest-impact, lowest-risk changes: quick pricing adjustments on upcoming renewals, elimination of clearly redundant costs, renegotiation of vendor contracts, and organizational assessment to identify leadership gaps. These early actions generate immediate EBITDA improvement and build momentum for the larger structural changes (R&D restructuring, sales reorganization, platform consolidation) that unfold over the subsequent 12-24 months. For TMT bankers running sell-side processes, understanding the PE firm's 100-day plan is important for evaluating bid credibility and for advising target company management teams on what to expect post-close.

Pricing Optimization

Pricing is the highest-impact, fastest-acting lever in the software PE playbook. Most public SaaS companies undercharge relative to the value their software delivers, because public companies fear the customer pushback and churn risk of price increases. PE firms approach pricing systematically:

A 15% price increase on a $100 million ARR business adds $15 million in high-margin incremental revenue. At 80% gross margins, this generates $12 million in incremental gross profit, nearly all of which flows to EBITDA. At a 10x EBITDA exit multiple, this single pricing action creates $120 million in enterprise value, far exceeding any customer losses from the increase.

R&D Rationalization

Public software companies often run R&D at 25-30% of revenue because Wall Street rewards innovation narratives and because engineering leaders naturally want to pursue ambitious product roadmaps. PE firms take a more disciplined approach, categorizing R&D projects into three tiers:

Reducing R&D from 28% to 18% of revenue on a $200 million ARR business saves $20 million annually, flowing almost entirely to EBITDA. The best PE operators protect investment in customer-facing features and AI capabilities while cutting spending on lower-priority internal tools, redundant platforms from prior acquisitions, and speculative research that is years from commercialization.

Sales and Go-to-Market Efficiency

PE firms restructure sales organizations to maximize efficiency and reduce CAC. Common changes include:

The goal is to improve the sales efficiency ratio (net new ARR generated per dollar of sales and marketing spend), which directly improves unit economics and makes growth more capital-efficient.

The magnitude of potential sales efficiency gains is significant. Many public SaaS companies spend 40-50% of revenue on sales and marketing, often because they are acquiring new logos at any cost to sustain the growth rates that public market investors demand. PE firms typically reduce S&M spend to 25-35% of revenue while maintaining or even accelerating net revenue growth by rebalancing the mix toward higher-ROI channels. A company spending $80 million on S&M against $200 million in ARR (40% of revenue) might reduce to $60 million (30% of revenue) while growing ARR faster, because the remaining spend is more efficiently allocated. The $20 million in savings flows directly to EBITDA, and the improved efficiency demonstrates to future acquirers or IPO investors that the business can grow profitably.

G&A Reduction

Taking a company private immediately eliminates significant public company costs: SEC compliance (Sarbanes-Oxley auditing, SEC reporting), investor relations (IR team, earnings calls, road shows), and board governance overhead. These costs can represent $5-15 million annually for a mid-cap public software company.

Stock-based compensation restructuring is a major component of post-close G&A optimization. Public SaaS companies often run SBC at 15-25% of revenue, using equity liberally to attract and retain talent in competitive hiring markets. PE firms replace broad-based equity grants with more targeted cash compensation and management equity pools that vest over the hold period, aligning incentives with the PE firm's value creation objectives. This restructuring reduces the dilutive cost of compensation and eliminates the disconnect between SBC expense and cash compensation cost that complicates public company financial analysis.

Additional G&A optimization includes consolidating corporate functions across PE portfolio companies (shared legal, HR, finance services) and renegotiating vendor contracts using the PE firm's purchasing scale. Large PE platforms like Vista Equity operate centralized shared services organizations that provide IT, procurement, and back-office functions to dozens of portfolio companies, achieving economies of scale that no individual portfolio company could reach independently.

Building an LBO model for a software take-private differs from a standard leveraged buyout in several ways that TMT analysts must understand.

The revenue build starts with ARR, not GAAP revenue. Project new ARR from customer acquisition, expansion ARR from the existing base (driven by NRR assumptions), and lost ARR from churn. Modeling NRR by cohort produces more accurate projections than a single retention rate.

EBITDA adjustments are critical in software take-privates. Stock-based compensation (SBC) is typically the largest adjustment: many SaaS companies run SBC at 15-25% of revenue, and PE firms add this back because they will significantly reduce equity compensation post-acquisition. The difference between GAAP EBITDA and adjusted EBITDA can be 20-40%, fundamentally changing leverage ratios and return calculations.

Debt capacity analysis for SaaS companies evaluates ARR-based leverage (total debt / ARR) alongside EBITDA leverage. A SaaS company might carry 4-5x adjusted EBITDA of debt, translating to approximately 1.5-2x ARR, a level lenders are comfortable with given the revenue predictability. The emergence of private credit as a major financing source for software buyouts has expanded debt availability and increased deal activity: the Dayforce take-private used a combination of bank debt and private credit to achieve its financing structure.

The private credit market (approximately $3 trillion in total assets) has software as its single largest sector exposure, with roughly 20-25% of all private credit deals involving SaaS companies. This concentration reflects the attractiveness of recurring software revenue as collateral, but it also creates systemic risk considerations. From 2015 to 2025, more than 1,900 software companies were acquired by PE in deals worth over $440 billion, and many of the loans backing 2021-2022 vintage deals were underwritten at peak valuations that have since declined significantly. TMT bankers advising on leveraged finance for software take-privates must understand the current lending environment: following the peak leverage period of 2021-2022, average debt multiples have recalibrated to more conservative levels, with most transactions clearing around 5.0x EBITDA. Recent large take-privates have been financed with lower debt ratios than the historical norm, reflecting both lender caution and higher interest rates that constrain debt service capacity.

The exit is where PE value creation translates into realized returns. PE firms exiting software investments pursue three primary paths, and the choice depends on the portfolio company's scale, growth trajectory, and market conditions.

Strategic sale is the most common exit for smaller and mid-market software portfolio companies. The PE firm sells the business to a strategic acquirer (Microsoft, Salesforce, Oracle, SAP, or a larger software platform) at a premium to the entry multiple, capturing the margin improvement and revenue growth achieved during the hold period. Strategic buyers pay premiums for PE-optimized businesses because the operational improvements have already been executed, reducing integration risk.

Secondary sale to another PE firm (also called a sponsor-to-sponsor transaction) has become increasingly common as the universe of technology-focused PE firms has expanded. A company acquired by a mid-market PE firm at 8x EBITDA might be sold to a larger-cap PE firm at 12x EBITDA after the business has been scaled and professionalized. Thoma Bravo's planned exit of Imprivata (healthcare cybersecurity), valued at approximately $7 billion, illustrates how PE firms can generate significant returns through sponsor-to-sponsor sales.

Re-IPO is the exit path for the largest and highest-growth portfolio companies. The PE firm takes the company public again at a higher valuation than the take-private entry price. This path is less common because it requires favorable public market conditions and a business that has reached the scale and growth profile that public market investors demand, but it can generate the highest returns when conditions align.

PE take-privates of European software companies are an increasingly important deal category. Hg Capital (London, approximately $70 billion AUM) has built one of the largest technology PE portfolios globally, focused primarily on European enterprise software. Hg's portfolio includes Visma (Nordic accounting and ERP software, valued above $19 billion), which has been built through decades of acquisitions into one of Europe's largest software platforms. EQT, Permira, and Nordic Capital are also active in European software buyouts, and the competitive landscape for European software targets has intensified as more PE firms recognize the opportunity.

European targets often trade at lower multiples than comparable US companies (reflecting smaller addressable markets and lower growth rates), which can create higher entry-to-exit multiple expansion potential for PE acquirers applying the same operational playbook. A European vertical SaaS company trading at 5x ARR might be acquired, optimized using the same margin improvement techniques applied to US targets, and exited at 8-10x ARR once the operational improvements are demonstrated, generating stronger multiple expansion than would be achievable with a US target acquired at 7-9x ARR.

Cross-border software take-privates are also growing: US PE firms like Thoma Bravo and Vista Equity are increasingly acquiring European software companies, while European PE firms occasionally acquire US targets. For TMT bankers at global firms, cross-border software take-privates represent a growing workstream that requires coordination between US and European deal teams, understanding of both regulatory environments (including EU data protection regulations that affect SaaS businesses), and familiarity with the different market dynamics in each geography.

Software take-privates generate some of the largest and most complex advisory mandates in TMT. A single take-private can involve:

The recurring nature of PE software deal flow makes this one of the most reliable advisory revenue streams in TMT. PE sponsors are repeat clients who execute multiple transactions per year, and each portfolio company becomes a potential advisory client for add-on acquisitions. For analysts, working on PE software take-privates builds direct relationships with the firms that represent the most common exit opportunity from TMT banking.