LP-friendly terms boost Vista fundraise

The firm, led by a former Goldman executive, is offering a European-style waterfall and 100% deal fee offset for its fourth fund.

Vista Equity Partners has collected about $1.6 billion for its fourth fund after about 10 weeks on the market, garnering strong support for a fund that has some LP-friendly terms.

Fund IV, targeting $2.5 billion, is expected to close this year, according to sources and filings with the US Securities and Exchange Commission.

The fund has already surpassed the total haul of Fund III, which closed on $1.3 billion in 2007, with “almost” all existing LPs increasing their commitment to the new fund, according to a person with knowledge of the fundraising.

Vista declined to comment.

Several limited partners told Private Equity International that Vista would have a smooth fundraising because of a solid track record. “They’ve done a phenomenal job,” one existing LP, who committed to Fund IV, said in a prior interview. “They won’t have any problem raising money. I have other [institutions] calling me asking about them.”

Friendly terms

LP support is being driven by the firm’s strong track record. According to sources, Vista has generated an overall cash-on-cash return multiple of 3.8x and an internal rate of return of just under 50 percent since inception.

LPs have also been attracted to some of the firm’s terms. Vista is using a European-style waterfall on Fund IV, meaning that LPs must get paid back all their capital plus a preferred return before the GP collects any carry.

Vista also lowered management fees. It’s not clear how much fees were cut, but management fees in the fund will be 1.5 percent during the investment period and 1.5 percent per annum of LP capital contributions for investments still in the portfolio, according to information from the New Jersey Division of Investment, which committed to the fund. Management fees are 1.25 percent for commitments of $200 million or more in the first close. Vista also will use 100 percent of any deal fees to offset the management fee.

Carried interest will be 20 percent once all capital is returned plus a preferred 8 percent return; however, if the fund generates a realized 3x or more return, the GP will collect 30 percent carry.

Big exit

The firm invests in software and, according to LPs, uses a system of “best practices” in its portfolio companies. The system, which is codified and taught across the portfolio, has helped the firm with consistent returns, one source said.

Earlier this year, Vista partially exited its investment in Sunquest Information Systems to Huntsman Gay Capital Partners, Credit Suisse and Neuberger Berman. The sale generated a 3.5x cash return. The firm, which still owns about 47 percent of the company, originally invested about $200 million of equity in Sunquest.

Vista was founded in 2000 by former Goldman Sachs executive Robert Smith. The firm’s first fund raised about $1 billion from one LP, a businessman that had a relationship with the firm. The second fund, which is called Fund III, was the firm’s first institutional fund.