by Freya Pratti

The US PE firm hopes to close one more European deal before the end of the year

Last year, US private equity firm Thoma Bravo acquired London-listed cybersecurity giant Darktrace for $5.3bn, taking private one of European tech’s highest value software companies and dealing a blow to the London Stock Exchange in the process.

A number of Darktrace’s investors bemoaned the transaction: some in private and some more publicly. “It still has a bright future ahead of it were it not to have sold,” tweeted Hoxton Ventures general partner Hussein Kanji, an early backer of the startup.

For Irina Hemmers, partner at Thoma Bravo and head of its European office, the criticism represents broader preconceptions about private equity among VCs. “Quite often people think you either grow or you're profitable, and you can't do both,” she says.

“The VC thinking is quite often: if you grow faster, you need to burn more cash, because that also gives the opportunity to invest more and grow the valuation. I think there's sometimes a little bit of a disconnect there.”

Despite the disconnect, the two pools of capital are growing closer. A stagnant IPO market means VCs are increasingly turning to PE as an exit route for their companies — and PE firms are enjoying fishing in the pool it opens up, Hemmers says.

The draw of Europe

Thoma Bravo made its first European investment in 2011. Deciding the continent deserved boots on the ground, the software-buyout specialist then opened an office in London in 2023.

In February this year, Thoma Bravo closed a dedicated fund of €1.8bn to target “middle market” European software companies — typically those making between $1bn-10bn in revenue.

Since then, Thoma Bravo’s European team has made six investments, including the €400m take-private of German compliance software provider EQS Group and investments in German IT management software USU, Swedish SaaS company Hypergene and Dutch healthcare analytics firm Logex.

Take-privates form a central part of its deal-making: Hemmers says the firm is “very closely” monitoring a number of companies on the LSE as well as a number of other European stock exchanges.

Europe offers lower valuations, as well as a crop of companies that have grown up with a frugal mindset because of the continent’s relative capital scarcity, says Hemmers.

“We like the discipline of companies who've grown up with constrained resources and been really very thoughtful about where to spend and how to spend. It’s what attracted us to Europe.”

PE and VC get closer

Thoma Bravo has had increasing contact with VC firms over the past few years, coinciding with the stagnation of the IPO market and a recognition among earlier-stage investors that they’ll need to look to other forms of exit for their portfolio.

“The exit routes for VCs are clearly changing,” she says. “Somebody early on in my career said to me, ‘good businesses are bought, not sold.’ VCs need to think early on: who is going to buy this business?”

Some have questioned exactly how open the PE market is, given it’s suffering from its own liquidity crisis.

“Private equity has been a bit more stop and go and a little bit more risk off at times over the last couple of years,” says Hemmers. “That doesn't apply to us, because we have a brand new fund, so we didn't have any portfolio to look after.”

To open up the PE exit route, VCs need to present companies with clear product-market fit and without any remaining R&D challenges. Successful VCs target two or three PE firms known to suit the business they’re looking to sell, rather than approaching tens of generic PE firms, Hemmers says.

PE firms are much more interested in the functioning of the management team, rather than the vision of an individual founder, says Hemmers.

“It's quite often quite telling when you're in a meeting room with a management team, to see who talks. Is it just the founder, and is nobody else allowed to say anything? Are the others only allowed if he or she points to them, or are they all drawn into the conversation?”

The early-stage AI shakeout

Thoma Bravo currently sees opportunities in sectors like healthcare, including software that’s working to digitise workflows, as well as regulatory and ESG tools, and cybersecurity businesses.

Other sectors are less convincing. In recent months, the startup world has been gripped by a new crop of AI native companies, promising to shake up the incumbent SaaS world by producing websites and apps at lightning speed.

A much-cited example is the clone of document signature software Docusign, produced “in 10 minutes” using Swedish vibe coding startup Lovable.

For Hemmers, the draw of older SaaS companies comes from their ownership of proprietary data collected over a long period: something vibe-coding apps can’t replicate.

“They’ll definitely put more pressure on the incumbents and the industry,” says Hemmers. “But I do also think the AI evolution will be hugely costly from an investment perspective. I think there will be quite a shakeout in the early-stage AI world.”

Hemmers hopes to close one more deal before the end of the year. Competition for high-growth businesses is fierce, she says: the firm missed out on an Irish company, bought by a strategic buyer earlier this year (she declines to name which one).

“Really high growth companies, companies that grow at 30 to 40% consistently, even if they don't make much money, are being snapped up really quickly.”

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