Private Equity Deals: Lessons in Investing, Dealmaking, and Operations From Private Equity Professionals by Ted Seides

Author:Ted Seides [Seides, Ted]
Language: eng
Format: epub
Tags: Business & Economics, Personal Finance, Investing
ISBN: 9781804090749
Google: gesSEQAAQBAJ
Amazon: B0CNW5P8N8
Publisher: Harriman House
Published: 2024-09-09T22:00:00+00:00

Those rising rental rates has a positive impact on RealPage’s revenue. The organic growth metrics for the business are 2%-3% unit growth, plus 3%-4% rental rate growth, plus new customer acquisition, plus new product penetration, plus cross-selling. To the extent one of those is higher, that drives incremental revenue growth and drives cash flow to the bottom line. In many regards, that gives us more debt capacity to make acquisitions and bring new innovative technologies into the mix. These software companies generate a lot of cash. EBITDA increases over time, and you can make acquisitions with debt capital and drive equity value.

Ted: Given the critical infrastructure for the industry, I’m curious how you chose what sounds like a pretty light debt load for such a recurring-revenue business.

Scott: We did lever the business, but not super-aggressively because we like to leave room to make some acquisitions. We typically are a little bit conservative in terms of the debt capital we raise. But we’re not super-conservative.

Ted: This is one of the largest deals you’ve done as a healthy component of equity, so it will obviously be critical to your results. In terms of decision making, what factors come into play when you decide either to pull the trigger on something so significant or to take a pass?

Scott: It was stressful making an investment decision on a $10 billion deal. At the time, it was the largest deal we’d done in the history of the firm (although a year later, we surpassed that with another public company, Proofpoint). Ultimately, our underwriting criteria and our investment value creation criteria have remained the same for the last 20 years. It’s about sticking to our knitting: understanding what we like in a business; understanding the diligence issues that we’re looking for—organic growth, retention rate, recurring revenue, the competitive landscape—and getting underneath all those things to find what we like in a business, which is market leadership, super-high-quality revenue, super-sticky products, a good management team, the ability to make some operational improvements, and a fragmented market where we can create value through acquisitions.

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