Thoma Bravo Fund XII expands strategy to large caps

The Chicago-based firm’s latest vehicle, which does not have a performance hurdle and has slashed its management fee, is targeting more than $7bn.

Thoma Bravo is broadening its investment strategy to include large cap transactions in addition to mid-market buyouts with its latest fund, Thoma Bravo Fund XII, Private Equity International has learned.

Fund XII began fundraising in January with a $7 billion target, almost double the size of its predecessor vehicle, Thoma Bravo Fund XI, which closed on $3.65 billion two years ago, according to fund documents presented last month to Los Angeles City Employees' Retirement System (LACERS).

LACERS has made a $25 million commitment to Fund XII.

The latest vehicle has a $7.2 billion hard cap and is already oversubscribed, according to a person familiar with the fundraising, who added that it will close by the end of June after only six months in the market. Thoma Bravo declined to comment.

The bigger fund will allow the firm to make larger transactions than previously, a strategy that Thoma Bravo began pursuing in the last couple of years but the expansion is now explicit in Fund XII documents.

Documents from LACERS indicate that Fund XII will continue to focus on investing in software and technology-enabled services companies, planning to make 10 to 12 investments, including three to four large investments above the $1 billion mark. The remaining seven to 10 mid-market investments will be in the $200 million to $600 million range. No individual investments will exceed 20 percent of aggregate commitments.

This is an expansion from Fund XI's investment thesis, which focuses on equity investments from $100 million to $500 million per transaction, according to the LACERS documents.

Some of the larger transactions Chicago-based Thoma Bravo recently completed include the purchase of IT management software company SolarWinds in February for $4.5 billion along with Silver Lake Partners. The firm will also rely on co-investments to target larger deals as it did a year ago when it acquired software company Riverbed Technology along with Teachers' Pension Plan for about $3.5 billion.

The move to include larger investments in Thoma Bravo Fund XII's strategy was mainly prompted by the fast growth that companies in the technology and software sectors have experienced in recent years.

Thoma Bravo also lowered the management fee on the latest fund to 1.5 percent from 2 percent for Fund XI, according to LACERS documents. The carry will remain at 20 percent, but Fund XII will not have a preferred return rate. Fund XI did not have a preferred return either. 

The firm will commit at least $300 million to the fund, according to the documents, which were prepared for the pension plan by Portfolio Advisors.

Founded in 1998, Thoma Bravo, which also has offices in San Francisco, also raised a debut lower mid-market fund, Thoma Bravo Discovery Fund, which closed in February on nearly $1.1 billion, reaching its hard-cap. Fund XI was supplemented in 2015 with a $1.065 billion Special Opportunities Fund II.

Fund XII's key-man clause includes Seth Boro, Orlando Bravo, Scott Crabill, Lee Mitchell, Holden Spaht and Carl Thoma.

Thoma Bravo Fund IX, which closed in 2009 on $822.5 million, had a net internal rate of return of 47.1 percent and a 3.52x multiple, as of 30 September, according to the Florida State Board of Administration. Thoma Bravo Fund X, which closed on 2012 on $1.25 billion, had a net IRR of 33.3 percent and a 1.9X multiple.