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The Rise of Private Equity in Technology By @JnanDash | @CloudExpo [#Cloud]

The model seems to be – take a struggling public company private, work on improving its margins and value, then sell it back

Last week, a public company Informatica got acquired by two private equity funds – the Permira fund and Canada Pension Plan Investment Board (CPPIB) for $5.3B. This is the biggest leveraged buyout so far this year.

I am happy for my friend Sohaib Abbasi (we were colleagues at Oracle during the 1990s) who is CEO of Informatica after being a board member for a couple of years. During Sohaib’s time, the company entered into playing a bigger role in data archiving and life cycle management. It also made progress into offering cloud-based services.

Gourav Dhillon (founder, Snaplogic) founded the company back in 1992 and was its CEO for 12 years growing it to be a $300m company after a successful IPO. It was created during the rise of data warehousing and one needed a component called ETL (Extraction, Transformation, and Loading), a process of cleansing the data from operational systems and getting it ready for analytics. I used to call this “twenty-five years of sin” that needs to be corrected!

Informatica helps companies integrate and analyze data from various sources. It counts Western Union Co, Citrix Systems Inc, American Airlines Group Inc and Bank of New York Mellon Corp among its customers. It competes with Tibco, which was taken private for $4.3 billion in December 2014 by private equity firm Vista Equity Partners. Dhillon thinks his new company Snaplogic is better off by seeing two of its competitors (Informatica and Tibco) shunted to the land of private equity, which will squeeze these companies for profit. This is financial engineering at its best and will impact customers and long-term employees negatively while rewarding top management.

Many people believe that the private equity players will eventually sell this to a big technology player, much like Crystal Decisions was acquired by Business Objects (now part of SAP) for $1.2B in 2003. The model seems to be – take a struggling public company private, work on improving its margins and value, then sell it back to a sugar daddy and make a hefty profit. We saw that happened to Skype also (from eBay to private equity to Microsoft).

The timing might be really good for this, because the areas that Informatica specializes in, are the key touch points within the enterprise: data quality and data security and data integration in support of big data projects. That explains the high value of $5.3B.

Other start-ups getting private equity funding in recent times include – Cloudera, MongoDB, etc. They provide an alternative funding resource to the traditional VCs.

More Stories By Jnan Dash

Jnan Dash is Senior Advisor at EZShield Inc., Advisor at ScaleDB and Board Member at Compassites Software Solutions. He has lived in Silicon Valley since 1979. Formerly he was the Chief Strategy Officer (Consulting) at Curl Inc., before which he spent ten years at Oracle Corporation and was the Group Vice President, Systems Architecture and Technology till 2002. He was responsible for setting Oracle's core database and application server product directions and interacted with customers worldwide in translating future needs to product plans. Before that he spent 16 years at IBM. He blogs at http://jnandash.ulitzer.com.

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