Sorry if this has already been covered elsewhere but just wondering how software investors that are technically GE shops (Insight / TA / GA / TCV etc.) are executing majority transactions on companies that are not cash flow positive. Are they not using leverage and just buying up equity with cash? Any explanations or links to posts where this has been covered would be great.
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Buyout with one of the uses being balance sheet cash + ARR-based loan (1.5-2.0x).
Getting massive inbounds on ARR loans from a BX/Owl Rock/HPS or any DL that can write equal to smaller-sized checks. Taking tech equity risk (better than a lot of cyclical credit risk) for a HSD notional payout a nice symptom of rates that never go up.
Vista buys majority positions in Enterprise Software companies. Robert Smith mentioned in an interview recently that up until 2007 banks wouldn't provide leverage for these companies so it was all cash. There is minimal leverage used today.
You can get loans based on a multiple of ARR even if the company is not cash flow positive as long as its growing quickly and there is a chunky equity check sitting below the debt. If you can show a plan to get to breakeven within the first 18 months of ownership, even better.
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