In this episode of Behind the Deal, Thoma Bravo Partner Adam Solomon and SMA Technologies CEO Todd Dauchy discuss Thoma Bravo’s acquisition of SMA Technologies.
AIR DATE:
April 17, 2025
LENGTH:
17:37
DISCLAIMER:
This podcast is for informational purposes only and does not constitute an advertisement. Views expressed are those of the individuals and not necessarily the views of Thoma Bravo or its affiliates. Thoma Bravo funds generally hold interest in the companies discussed. This podcast should not be construed as an offer to solicit the purchase of any interest of any Thoma Bravo fund.
Transcript
[MUSIC IN]
TODD DAUCHY:
I think that was one of the hardest experiences of my entire career is in those early days when you're transforming this company from being the sleepy business to a high-performing company. Not everybody's on board with that. And it takes a long time to start building really deep relationships with people to get them to understand where you're going, explaining the whys, and just repeating that message again and again and again.
And just great things started happening once we had a highly engaged, highly talented team that all knew exactly where we were going. Just the magic started happening. I don't think any of the results that we've received over time would have happened without those first three things. It all started with people.
ORLANDO BRAVO:
Welcome to Thoma Bravo’s Behind the Deal. I'm Orlando Bravo, Founder and Managing Partner at Thoma Bravo. And that was Todd Dauchy, CEO of SMA Technologies, speaking with Thoma Bravo Partner Adam Solomon.
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At Thoma Bravo, we pride ourselves in partnering with exceptional software companies, and SMA is a great example. Founded in 1980 by automation experts at NASA, SMA specializes in automation solutions for the financial services sector.
SMA is a fantastic business—a market leader with impressive revenue metrics. Two years into our investment, the results are just great. The company's performance has drastically improved, with the “rule of” doubling from around 30 at the time of acquisition to 62 today. Additionally, this year’s budget EBITDA is approximately equal to the company’s revenue at the time of acquisition.
This deal is a compelling case study of how we can accelerate growth while simultaneously increasing profitability.
In this episode, we’ll hear from Todd Dauchy, CEO of SMA Technologies, who offers a unique perspective shaped by his experience as both a customer and a leader in the automation space. So today, we’ll uncover everything that went on ‘Behind the Deal’ with Thoma Bravo Partner Adam Solomon and SMA Technologies CEO Todd Dauchy.
[MUSIC IN]
ADAM SOLOMON:
My name is Adam Solomon. I'm a partner here at Thoma Bravo, where I joined a little bit over four years ago. And I co-run our Explore funds, which are focused on lower mid-market software buyouts.
SMA Technologies provides workload automation and orchestration software. So what that basically means is wherever there are repetitive or manual tasks that are critical to business processes, SMA is able to automate those and enables its customers to save money, to redeploy resources, to hire value tasks, and to reduce the error rate of those tasks. And the platform is applicable across many, many end markets, but they have a particular strength of integration, and the product is particularly strong in the financial services end market.
We've been tracking SMA technologies for quite some time. It sits at the nexus of a couple of investment themes that have been really fruitful for the firm over the very long period of time. One being infrastructure software, SMA Technologies, that at its core is an infrastructure software company. And the other is financial services software, which has been a very, very successful area of investment for us. A little bit of it has the best of both worlds, where they're able to really dominate their market in infrastructure, software, and financial services.
And we finally got the opportunity to invest in late 2022. And where it all kind of came together was at–one day in Houston. And so the company has always been remote first, so we met at a co-working space, and it was the Thoma Bravo team and the SMA management team. And it's one of these days where it's–you know a six hours of meetings, going through all the gory details of the business, followed by dinner with the management team. It's standard operating procedure for kind of any whenever we make any investment. And there are a few things that clicked in that meeting.
And perhaps the most important one is that we saw a number of opportunities in that meeting to accelerate the growth rate for the business, in doing so in a way that doesn't impact the margin profile negatively. And in fact, we saw opportunities to improve the margin profile at the same time as improving the growth rate.
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ADAM SOLOMON:
SMA has this unbelievably great positioning in its core market. OpCon as a product is the industry standard, and what it does is automates manual and repetitive workloads. So, it's got a lot of different use cases within a given customer, but think about these as absolutely business-critical workloads that without OpCon would have to be done manually, which is, of course, time-intensive, but also just as importantly, error-prone.
And OpCon basically integrates into all of the necessary systems, including really legacy old systems, and enables you to automate those workflows. And when we were doing our market calls and calling a bunch of customers, the consistent feedback we got was: It just works.
And when you're buying infrastructure software, that's the best possible feedback you can get, right? It just does what it needs to do, and it just works, and we never have to think about it. It is set it and forget it. And what we saw as working off of that as the base, there are a number of levers to pull to accelerate growth.
One is just really being laser-focused on the credit union and banking and market where they have such a powerful market position, and putting more go-to-market resources behind that effort. Secondly, is we realized that OpCon is fantastic at what it does, but there's other products that we can build and or buy to sell into that customer base and to expand our customer base.
And that's exactly what we've done. We've built some new products organically that dramatically increased the company's addressable market size. And we've acquired two businesses since we bought SMA. One acquisition gets us a little bit down market and broadens our product suite there. The other acquisition gets us even deeper into the financial services space and adds some really neat product capabilities there.
And so we saw is that we've got this great base, and with a couple of operational changes and some focus and some investment, there are just these really attractive growth opportunities that you were uniquely positioned to prosecute. And so we kind of had that “aha” moment in diligence during that marathon meeting.
I will say that's despite the fact that, and I'm convinced Todd did this intentionally. They ordered in Chick-fil-A for lunch, I think in the hopes of trying to get us into a food coma so we would ask fewer questions. But despite that, we kind of had those key breakthroughs in that diligence meeting. And then coming out of that, we were all set to go to dinner. And this is arguably more important than the breakthrough in diligence. Todd basically pulled me aside and he said, “Look, I know Thoma Bravo, you and I have talked a lot about what this deal looks like. I feel very excited about what Thoma Bravo can bring to the table. However, I don't know you personally all that well. Let our teams have dinner or get started on dinner, and come with me, and let's sit at the bar and have a drink.” And so we each had a Manhattan or two and talked a little bit about the business and a little bit about Thoma Bravo, but really a lot more just about ourselves and our personal lives, and children, and our dreams and hopes and aspirations, and all of that.
And that personal relationship was really crucial to forging our path to a deal because we both just trusted that the other person would say what they were going to do, do what they were going to say, and deliver the goods.
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This wasn't one that was immediately obvious. You just look at the deal and the company at the time, at first blush, it seems like it's got a really small market. And that–because of that, it's gonna be hard to really grow the business at the rate that we would want to grow it at while also maintaining really good profitability. And that was the first blush reaction that we had.
ADAM SOLOMON:
As we dug in deeper and deeper, and we had that meeting in Houston, I think we realized that the core market is actually plenty big. It's just a little sleepy, and it just requires real focus to execute against that opportunity. So that's one thing we realized. And the second thing we realized is that there's a bunch of adjacencies off of that core market where we are uniquely positioned to win. And that again, it would require some product investment, would require maybe some M&A, making sure we're doing the right M&A, of course, but would require some M&A to go address those product adjacencies, but we realized that it was right in front of us to kind of expand the market size meaningfully in short order, and that's exactly what we've done.
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What's a little bit unique about this deal is just the way that Todd and we got alignment on an operating plan. And so we had those drinks together, we had that great dinner, built that really close personal relationship, and then a couple of weeks later, as we're getting close to signing the deal, we presented our operating plan to Todd.
And it was a plan that contemplated taking growth rate up meaningfully while also taking margin up meaningfully, which runs counter to every bit of common wisdom about there being a trade-off between growth and profitability in software companies. And to his credit, Todd digested it. And then we had another four or five calls where Todd was asking all the right questions around how exactly to accelerate growth while taking margin up meaningfully.
And he was just so thoughtful, and he was careful not to just tell us what we wanted to hear and just say, “Yep, no problem, I can hit these numbers.” He was also careful not to dismiss it out of hand and say, “You guys are out to lunch if you think you're going to get margins up and get growth rate up that much.” And he was just extremely thoughtful and relied on our personal relationship to really discuss the operating plan in a level of detail that we're not normally able to get to. And ultimately, before we signed, not only did he shake hands with us and say, “Yep, I'm gonna go get this plan done,” he was visibly excited and amped up to go take the hill and to go deliver on these financial results.
Working with Todd is an absolute pleasure. I would say he is like so many of successful CEOs. He has that balance of being very product-centric, very customer-centric, very operational, very in the weeds, and knows everything about his business. What makes Todd a little different than a lot of the CEOs that we work with is just how much he values that personal relationship.
And so when we spend time together, even to this day, it's all about just our personal lives and what's going on. And it's a true, I would say, a true friendship that we've built.
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ADAM SOLOMON:
Up next, my conversation with Todd Dauchy.
Well, Todd, thank you so much for coming on Behind the Deal. We really appreciate it.
TODD DAUCHY:
Thanks, Adam, I'm really excited to be here.
ADAM SOLOMON:
And we caught you the week after rodeo. So hopefully you are ready and refreshed to do this.
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TODD DAUCHY:
I'm ready. I don't know about Refreshed. It's been a long week, but we've been having a great time.
ADAM SOLOMON:
Fair enough, fair enough. Well, super. So you've been with SMA for well over a decade, originally as CTO, then president, now, of course, CEO. Would love just to hear how you've kind of evolved over those roles, how each of those different roles has affected your perspective on your current role, and just what you've kind of learned along that journey.
TODD DAUCHY:
Yeah, so when I first joined SMA, Adam, I joined as CTO, as you mentioned, and I had the opportunity to really see the business from the technology side first. And the thing that I loved about SMA is it was just very customer-centric. They did anything and everything a customer would want. However, the downside to that is they were trying to be all things to all people. And there some tech debt that was piling up.
And I spent a lot of my early days in the career just working through infrastructure, things that have been, I guess, not updated as they should have been along the way, and modernizing the platform. So those were like the early days. And from there, I started shifting and working more in the business side, working on improving systems and processes internal to the company as we were growing the business and starting to get some really good scale inside of the company.
And I think the biggest thing that I learned during those early days was all things to all people sounds great, but it's really hard to do and it's hard to do well. And the more we got focused in our wind zone, the more successful we were.
ADAM SOLOMON:
That's great. Yeah, that importance of focus, I think, is something that'll come up over and over and over again. And I know that before you joined SMA, this would have been what? Fifteen years ago almost, you were a customer of SMA. And so you bring a pretty unique perspective from that point of view. Can you just tell us a little bit about what, from a customer's point of view, what SMA does for them? What OpCon as a product does for them? Why it's so valuable and important?
TODD DAUCHY:
Yeah, sure. So I was with a large credit union. And back in 2005, we had changed our core processing environment, and we'd been looking for an automation platform to make our computer operations department more efficient, but also more effective, as there's just a lot of opportunity for errors in that level of processing.
So just imagine a computer operator that has to come to work every single day and they run your most critical mission, critical processes through the night. It could be things like dividend calculations, payment processing, statement generation, and a variety of other topics. By default, that's all done by hand and manually done. And SMA OpCon can come in and completely replace all of that human labor with a machine, basically to do all of that in a completely automated, lights-out way. The machine never takes a break, never takes a holiday, and never makes an error.
ADAM SOLOMON:
That's awesome. And how do the customers think about the ROI that they get? How do they think about the value? Is it just hard dollars? Is it more strategic than that?
TODD DAUCHY:
I think it's looked at a couple of different ways. Of course, there's some hard dollar savings. When you put in a system like that, you can reallocate people either to cost savings or we usually like to try to see our customers elevate people and to go to do on more of a street strategic roles. Another huge benefit of that is if you think about payment processing at a financial institution, they're running millions of transactions a day. If a single error happens, it affects hundreds of thousands or millions of people.
And having the computer take over and run all the processing there with OpCon, we can elevate that to a more error-free environment, a much more error-free environment, so customers get a better experience, employees are getting a better lifestyle, and the financial institutions can save a little bit of money.
ADAM SOLOMON:
So, in addition to our core software, we also offer Managed Automation Services, or MAS. Could you maybe say a little bit about how that came to be and what exactly that does for our customers?
TODD DAUCHY:
eah, MAS was like a major turning point for SMA. If you think about the industry that we serve, we serve from really small banks and credit unions to really large financial institutions. And we were hearing a need from those in the smaller to mid-size ranges where they loved the power of OpCon, they loved the value that they got from it, but they just didn't have the resources to be able to manage a complex system like OpCon can be.
Overall, we try to keep it really easy to work with, but there's a mindset that goes with automation. And through that, we took the opportunity to step back and think about how could we bring additional value here?
And we created a really–a black box of OpCon where we treat it like a service. And my team actually builds automation workflows for our customers. We debug them, make sure that it all works. And then we put it into production and operate that. And if there's ever an issue going forward, my team gets all the notifications. They understand all the alerts that are coming in. We generally solve 90 plus percent of the issues that happen on a day-to-day basis within their customers' environment.
And if there's anything that we need to escalate from the customer, we're actually talking to them in native language and having a real conversation rather than somebody trying to interpret an error code and figure out what to do next. This is becoming a really popular part of our business, and many customers are signing up to have a more managed experience rather than rolling their own automation.
ADAM SOLOMON:
Super. One of my favorite things that I've heard you say in describing SMA is that it's a 40-year-old startup. Could you maybe tell our listeners a little bit about what you mean by that?
TODD DAUCHY:
Yes, so when I joined SMA back in 2012, the business was very much a lifestyle business with a family that was running it. Great company, great focus on the customer. And it was just like a fun environment to be in. But there was not a lot of focus in the business. And back in 2020, the founder wanted to do something different. I worked with him to help him to receive an investment in the business.
He wanted to retire. And I took over as CEO. And that was just a great opportunity to rethink how we were doing business, we spent a lot of time working on our strategy, and our go-to-market plans changed dramatically of how we were running the company. And we started acting like a startup.
And I think it was like the best of all worlds. We had the references of a great customer-focused business, lots of referenceable accounts that loved what we were doing, and we were able to focus our efforts on that specific area and generate much more success than we had in the past. So revenues over the next four years about tripled in size, and we were able to reallocate all of that investment back into the company rather than into a lifestyle business.
ADAM SOLOMON:
And doing that and kind of transforming a business, particularly taking over from a founder, what's a little sleepy and all that, that can require a pretty specific type of leadership style. And I think, at least I view your leadership style as being very personal and really kind of emphasizing the importance of personal relationships. Could you maybe say a little bit about why that is so important to you? How exactly do you go about building those relationships, and how it's served you?
TODD DAUCHY:
Yeah, absolutely. I think that was one of the hardest experiences of my entire career is in those early days when you're transforming this company from being the sleepy business like you talked about into a high-performing company. Not everybody's on board with that. And it takes a long time to start building really deep relationships with people to get them to understand where you're going, explaining the whys, and just repeating that message again and again and again.
And of course, not everybody gets involved in that. And we had to go through a lot of transformation. We rebuilt a lot of our team, starting with the leadership team, getting them highly engaged with what we're doing. And just great things started happening once we had a highly engaged, highly talented team that all knew exactly where we were going. Just the magic started happening. I don't think any of the results that we've received over time would have happened without those first three things. It all started with people.
ADAM SOLOMON:
Ain't that the truth? That’s always the case, and I think something that you do that's honestly differentiated versus a lot of other CEOs is you actually really go out of your way to build close personal relationships with your team and with your investors and with your customers. Where does that come from? Why is that so important for you?
TODD DAUCHY:
I think a lot of it is when you're a first-time CEO, you're sitting in a situation where you've run your functions that you've done really well, and now you're responsible for things that you've maybe not touched before, not done so well before. And I had to like change my mindset of trusting people along the way to do functions that I had no idea how to run them.
And the only way I could get comfortable with that was to really get to know them personally, get to understand what they were doing, and get them to open up with me and share with me what they were excited about, scared about, you know, concerned overall. And building that deep relationship led us to have just really open conversations as we navigated. And things actually started getting a lot more easy and, quite frankly, a lot more fun once we got it to that level of performance where we just loved working together and had fun doing it.
ADAM SOLOMON:
And so you kind of transformed this business into, as you said, a really high-performing organization. And then around two and a half years ago, you partnered with us at Thoma Bravo. Could you maybe talk us through that thought process and that decision process, why you were looking for private equity ownership? Why Thoma Bravo? Kind of, and how that partnership has gone.
TODD DAUCHY:
So yeah, back when we were first starting our journey, we were transforming SMA from being a single product company, workload automation, like we talked about before, to being an automation platform that was much more comprehensive. We wanted to have a solution that could handle both front office and back office. We wanted to be able to do batch and interactive processing. And we just knew there was a lot of acquisition need ahead of us to make all of that happen. And the equity partner that I had, while I loved working with them, they just did not have the capital resources to get us where we wanted to go. At the same time, there was also a lot of interest in the company. So we decided to take a look at the market. And Thoma Bravo showed up, and we were a little bit surprised by the brand recognition of Thoma Bravo showing up in little SMA. At least I viewed it as little SMA at the time.
And clearly through that process, Thoma's level of understanding of our business, understanding where we were, the thought that went into it, and the capital resources available behind Thoma, as well as the operational leadership, were very exciting to me. And I just knew that was a winning combination.
However, Adam, if you remember correctly, before we did the deal, I looked directly at you and said, “I don't want to work with somebody I don't respect and trust. And we haven't taken the time to get to know each other.”
ADAM SOLOMON:
I remember that very well. One of the more consequential Manhattans I've ever drank in my entire life.
TODD DAUCHY:
Yeah, for sure. And I think that was actually the point that solidified everything for me. We sat down, we talked about family and kids and relationships and how we thought about the world. And then when it came time to actually get alignment about what are we going to do with this company? Where's it going to go? We had a foundation of a relationship, and it was just much easier to get on the same page.
And I took that same skill set back to my team and basically told them about what I thought the relationship could be going forward, and everyone got excited about it. And at SMA, just when we hire a new employee, we don't look to try to get to a, yeah, I think that we can kind of do this. It's gotta be a hell yes or it's a no. And with you, it was a heck yes all the way, we were all in.
ADAM SOLOMON:
Well, the feeling was obviously very mutual, and it is no longer little teeny tiny SMA. I think we're all proud to say that. And to that end, over the last two and a half years, you and the team have done such an amazing job of growing the business really rapidly, doing some M&A, investing in new product, and all doing that while maintaining really great profitability and other metrics.
And that combination of growth and profitability is obviously what we always really look for, and to have a very high rule of and all of that. But it's so, so, so hard to actually do. Could you say a little bit about how at SMA, you've managed to really lead that just really exceptional performance?
TODD DAUCHY:
Well, thank you for the comments there. I actually think this is one of the easiest parts of the job, believe it or not. When we have alignment of where we're gonna go, and we have a team that's really motivated to get there, and everyone's growing in the same direction, when we've narrowed scope down to only doing the things that matter most, the hardest part is just saying no to everything else, and just not worrying about those things.
And the power of that is you're not wasting time and money on things that don't matter. You spend all of your attention on the things that do. Growth goes through the roof, and your cost is relatively contained to the practice that you're working on. And it's actually quite simple to do. It's probably harder to actually do than it sounds, but that extreme focus is what makes it happen.
ADAM SOLOMON:
You make it sound easy. I know a lot of hard work went into that, and obviously, much more to come, but well said on the focus certainly. And going forward, we've obviously got a terrific business in the financial services end market, credit unions, banks, etc. We've got a platform really that has applicability to a lot of different end markets, and we've got happy customers in a lot of different end markets.
As you look towards the future, how do you see you know, the verticals that we're in may be evolving or changing, or where would you want to double down and invest?
TODD DAUCHY:
Yep, so right now our focus is primarily in the financial institution space. We love this space. We have a lot of experts that work in this space. Our technology is uniquely positioned in this space. We really like being here. However, the thing that's really cool is all of the technologies that we have at SMA are applicable in any end market.
And I think a lot of our journey over the next couple of years is just looking for those use cases that are highly repeatable. Where can we double down on those use cases and expand on the fringes outside of our market? And let's let the customer base drive us to where we want to go. I could see some opportunities come in the future and potentially insurance. We also have some inroads in healthcare and other areas, but right now it's all about financial institutions, banks and credit unions until something speaks loudly to us of where we'd want to go next.
ADAM SOLOMON:
Great, great. Contractually obliged to ask this question, though I think it's a very interesting topic, particularly for a workload automation and orchestration software company. What are your thoughts on AI?
TODD DAUCHY:
So AI is really heating up here at SMA. We recently did an acquisition of a company called Encapture that does a lot with machine learning. And we're investing significantly to evolve that technology forward and really get out of the machine learning space and more into true AI, more advanced AI. And it's giving us the ability to process documents a lot faster, a lot more comprehensively, a lot less error-prone than we are today, improved accuracy rates.
But the thing that really excites me the most is by using AI, we're able to massively streamline our implementation timeline and take that down from hundreds of hours to tens of hours, which gets customers a time to value significantly faster than they get today.
ADAM SOLOMON:
And is there any element of AI that you view as a threat? Cause everything you just said, I think, is spot on, and I think there's clearly a huge amount of opportunity for our business. But is there any element of AI that you say, “gee, we kind of have to get ahead of that to head off a threat to help our core business”?
TODD DAUCHY:
I think there's a lot of people that are innovating broadly with AI. I think our unique opportunity is being very specific in how we apply it into the markets of where we are today. So all of the model training that we're doing, all the R&D spend that we have is focused tightly in our market where others aren't innovating at scale in this space. Again, they're more broad in their application.
ADAM SOLOMON:
And maybe lastly, you I would love to hear how you, what your vision is for the next, you know, two, five, ten years for SMA Technologies.
TODD DAUCHY:
Our vision for the future is actually quite simple. And I feel like we're still in the really early innings, Adam. We went through a transition of being a single product company, workload automation, like we've talked about before. And our vision is to be the capital T-H-E, the leading automation platform for financial institutions.
We've had some great acquisitions, we've got some great build that we've done already. Still early on, and there's a lot of opportunity here to keep growing the business as we move forward. So I would say for the next three to five years, you're gonna see me laser-focused right here in this space, looking for some other opportunities as we go along the way. But 95 % of my effort's gonna be right here.
ADAM SOLOMON:
Love to hear it. Well, fantastic. Thank you so much for joining us and taking the time. This has been a lot of fun.
TODD DAUCHY:
This has been great. Thank you so much.
ADAM SOLOMON:
Thanks to Todd Dauchy for sitting down with us today.
To learn more about SMA Technologies, check out SMA Technologies dot com, and if you like this episode, be sure to subscribe to Thoma Bravo’s “Behind the Deal” wherever you get your podcast.
Todd is also going to join me on next week’s episode of “Beyond the Deal,” our mini-series where we get to ask him anything.
Catch it in this feed next week. I’m Adam Solomon. Thanks for joining us.
ORLANDO BRAVO:
Behind the Deal is brought to you by Thoma Bravo in partnership with Audacy’s Pineapple Street Studios. Join us next week for more stories Behind The Deal. Thanks for listening.
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