Thoma Bravo LLC is looking to get a toehold in digital asset management, an emerging software niche that helps companies process, monitor and distribute video on and from their Web sites, firm founder Carl Thoma told Buyouts.
Thoma Bravo plans to put about $82 million toward the sector in the near term, and will devote about 10 percent of subsequent funds toward it. Thoma Bravo is currently investing from its ninth fund, an $822.5 million vehicle closed in 2009 that is about two-thirds invested.
Last March, the firm hired A.J. Rohde, a former associate at the media and communications-focused private equity firm Saban Capital Group, to help spearhead the initiative.
There are about 30 companies in the sector, mostly backed by venture capital firms, Rohde, a vice president at Thoma Bravo, told Buyouts. That could make them ripe for a takeover, he said, because many of the venture capital firms need to exit their investment or don’t have the capital expand the company with add-on acquisitions. In the aggregate, Rohde estimated those companies and a few others probably generate about $750 million in revenue, though he said the market is growing and difficult to define.
“There’s lots of opportunities to consolidate the market by backing the right platform and laying new acquisitions into that central platform,” Rohde said.
Thoma Bravo has had informal talks with management at several companies. It hopes to have its platform deal sometime in the next few months.
The niche is still very young, and even the most mature companies only generate about $10 million to $15 million of EBITDA. But Rohde said those numbers could easily double within 24 months for the right company, given the growth trends in the market.
Examples of companies operating in this market include Brightcove Inc., a Cambridge, Mass.-based company backed by Accel Management Co. Inc. and other investors which handles Web site video for several large companies, including The New York Times, Reebok, Staples and General Motors; Unicorn Media Inc., a Tempe, Ariz.-based company that helps content owners deliver video online; and Saffron Digital, a London-based digital content distributor backed by Beringea Private Equity, a Farmington Hills, Mich.-based venture capital firm.
Thoma Bravo is drawn to digital asset management because its sources of recurring revenue are similar to other software companies, a sector with which the firm has ample experience. Providers typically charge a client a monthly or annual fee for its services.
“Basically you’re buying a software business that operates much like our existing software portfolio, and you’ve got nice tailwinds in the end markets,” Rohde said.
Thoma Bravo could face competition from other shops that target software technology, such as Francisco Partners and Accel-KKR, and large strategic investors. Last August, for example, Cisco Systems Inc. bought ExtendMedia Corp., a San Jose, Calif.-based venture capital-backed business that helps media companies send video to computers and video devices, for an undisclosed amount.