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Vista Equity beats Fund IV target, eyes hard-cap

The software-focused firm, founded by former Goldman Sachs executive Robert Smith, expects to close its fourth fund on its $3.3bn hard-cap in early 2012.

Vista Equity Partners has busted through its target of $2.5 billion for its fourth fund, holding a third close on $2.8 billion and moving closer to its hard-cap of $3.3 billion.

Vista held its third close on Fund IV on 11 November, according to a person with knowledge of the fundraising. The firm has added new limited partners to its fund and plans to continue trying to form new relationships to reach its hard-cap, the person said. A final closing on Fund IV could come in early 2012, the person said.

Vista Equity declined to comment.

“[The firm] will spend the coming months determining which additional strategic LP relationships to develop to complete the final allowable capacity,” the person said.

Vista launched its fourth fund in the spring and quickly received commitments from many of its existing LPs. Investors have been attracted to the firm’s strong track record, which translates into a 3.8x cash-on-cash return, with a 46.5 percent internal rate of return, over the past 11 years.

Vista’s prior fund, which closed on $1.3 billion in 2007, was generating a 29.1 percent IRR and a 1.9x investment multiple as of 31 March, 2011, according to information from the California Public Employees’ Retirement System. Vista Equity is included in CalPERS’ Capital Link Fund, an emerging managers’ fund of funds run by Centinela Capital Partners. The third fund boasts the highest investment multiple in the entire Capital Link portfolio, which includes more than 50 funds, as of the end of March, according to the CalPERS information.

Friendly terms

Vista Equity has structured Fund IV with some LP-friendly terms, including a “European-style” waterfall distribution plan in which LPs must be paid back all contributed capital plus a preferred return before the GP starts to collect any carried interest.

Also, the firm lowered its management fees, though it is unclear by how much. On Fund IV, the management fee is 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 Investments, an LP in the fund.

Big spending LPs that came into the fund early got a break, with management fees of 1.25 percent for commitments of $200 million or more in the first close. Vista Equity is sharing 100 percent of any deal fees with LPs to offset the management fee, according to documents from New Jersey.

Carried interest is set at 20 percent once all capital is returned plus an 8 percent preferred return; however, if the fund generates a realised return of 3x or more, the GP will collect 30 percent carried interest.

Focus on software

Vista Equity’s focus is on software-related investments; the firm reaped a 3.5x cash return on its partial sale of healthcare software company Sunquest Information Systems, which it partially exited to Huntsman Gay Capital Partners, Credit Suisse and Neuberger Berman late last year. Vista Equity retained a 47 percent stake in the company.

The Sunquest exit returned all the capital that had been drawn from Fund III at the time, which was about $700 million, a Vista LP told Private Equity International. The firm has called $1 billion from that fund and the Sunquest investment, once fully exited, is expected to return more than the entire amount of the second fund, according to a person with knowledge of Fund III. Two other investments in the fund are expected to generate the same kind of return, the person said. Fund III has been active with more than 25 acquisitions in the last four years.

The firm has already closed one deal using capital from Fund IV. Earlier this month, Vista acquired healthcare software company Sage Healthcare for $320 million. The company sells software for physician practice management and electronic health records. Vista Equity is working on another deal to acquire Thomson Reuters’ Trade and Risk Management business, according to a press release.

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.