Looking for names of firms that don’t pay wildly high multiples in an undisciplined way (e.g., SoftBank) and that haven’t solely piggybacked off secular trends (although open to tech-focused names) but have identified niche opportunities and/or created actual value through their ownership. In other words, the smartest PE investors in the space right now based on something beyond just looking at fund IRRs
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H&F and Warburg very disciplined investors, focused on fundamentals and operationally hands on. Francisco Partners has a unique angle with focus on corporate carve outs. Apollo with its aggressive approach to hairy, value oriented situations.
Other tech names like TB and Vista have good playbooks but aren’t that nimble and have benefitted from the tech market bull run
Do you think FP is actually that different from TB/Vista? They’re obviously great tech investors, but I struggle to differentiate how much of that is actual skill vs just riding the tech train. I’m not super familiar with them so maybe they have some edge I’m missing, but I worked with them on the banking side and saw them pay plenty of ridiculous prices for mediocre SaaS businesses. They were just in a phenomenal spot in the mid-market software space and have benefited a ton from tailwinds there.
I just think tech PE now is so hard to differentiate who knows what they’re doing vs who is just riding the wave. We’ll be able to see in 3-5 years when some of these funds go bust, but it was hard to not make money the last 10 years if you just exclusively bought growing SaaS businesses
I think FP’s done some great carve out deals which are complicated to execute and they’ve been rewarded for it but agree, hard to really parse out. Outside of that, don’t think there are that material differences between them and a Vista/Thoma.
Also 100% aligned with you on your view on the broader tech market / investor universe.
Some that come to mind -
CD&R - Everyone I know there is super smart, just always struck me as very thoughtful investors who strike the balance of buying great assets without over paying
TA associates - I’m always impressed with their companies, they just buy diamonds in the rough for super cheap (sourcing engine) and do some bolt-ons / operations stuff and always seem to get great exits. The sourcing side is clearly they’re special sauce, they don’t really get involved in big auctions so they end up picking up assets for way less
Berkshire - Very intellectual approach to things, a bunch are ex-consultants so approach things more from a business lens vs just slapping a model together. Returns have lagged a bit but I think mostly since they were late to the party on tech, they’ve done a bunch of super interesting investments in very un-sexy industries.
Audax - I don’t know if I’d even call them smart vs just grinding their way to success, but they’re absolute machines at bolt-on acquisitions and probably better than anyone else at cobbling together a ton of companies (have seen port cos that have 20+ acquisitions). Not sure if smart is even the right word, but clearly a unique edge
Really can't think of many uber-smart investments made by Berkshire in recent memory. They're a pedigreed firm with a great track record and an orthodox playbook, but they don't stand out among the sharpest investors out there, imo.
Edit: MS being thrown without justification. The three firms I listed below have proven to create differentiated returns through ownership; Berkshire is very traditional and does what H&F does but on a smaller scale and with worse returns. WSO circle-jerks Berkshire way too much
KPS Capital, probably the best turnaround investor in the past several years
Genstar, done fantastically well buying growth assets and flipping them to larger PE funds for fat gains
Veritas, by far the most sophisticated in terms of government services/adjacent industries, boasted top quartile returns for years now by realizing value of committed cash flows
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