It’s possible that the two firms most responsible for the rise of the LBO in the 1980s were KKR and Golder Thoma. While KKR famously pioneered the hostile mega-buyout, assuming the role of barbarian at the gate, Golder Thoma developed a different tactic: the buy-and-build strategy, using one company as a platform for add-ons as a way to drive growth.
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But nothing lasts forever, particularly in an industry driven by five-year horizons. Both famous firms were bound for equally famous divorces. In 1987, Jerome Kohlberg left KKR to form Kohlberg & Co. and return to his roots in the middle market. A little more than a decade later, Golder Thoma underwent a split of its own. The result was the formation of the firms today known as GTCR and Thoma Bravo, two shops that retain significant presences on the private equity scene.
At the time of the separation, GTCR planned to raise larger funds and pursue bigger deals, while Thoma Cressey (as it was known at the time) would operate in smaller markets. But the rise of tech has caused the tables to turn. Investing almost entirely in the IT sector, Thoma Bravo has rocketed up the ranks of private equity fundraisers. Last year, the firm closed its latest flagship fund on $7.6 billion—nearly twice the size of GTCR’s latest flagship vehicle.
Accompanying the rise in fund size is a gradual increase in Thoma Bravo's activity, as you can see here:
How were the roles reversed? It’s a tale of massive deals, egos, a former tennis star and microprocessors—a case study in how the omnipresence of software is changing large swaths of the global economy.
After making his name at First Chicago, Stanley Golder departed in 1980 to form his own buyout firm with Carl Thoma. In 1984, they added as partners Bryan Cressey, another veteran of First Chicago, and Bruce Rauner, who’s today the governor of Illinois. A new name was bestowed: Golder, Thoma, Cressey, Rauner, or GTCR for short.
For the next 14 years, the firm built its status as one of the PE industry’s most powerful players, using its buy-and-build strategy to deliver excellent returns to LPs. But it was not to last. In 1998, the firm’s name partners split, with Golder and Rauner retaining the GTCR brand and Thoma and Cressey departing to open their own business. Both firms remained headquartered in Chicago.
One primary issue behind the separation: the handling of partnerships. While Rauner reportedly advocated a more liberal approach to naming new partners, Thoma and Cressey preferred to keep numbers small in order to maintain autonomy. That approach had already led to something of a talent drain from GTCR, with multiple investors deciding to strike out on their own rather than wait around for an elusive partnership that may never have come.
Another difference of opinion was size. Upon the split, GTCR planned to target bigger funds and bigger deals, moving into a more expensive class of companies, while Thoma Bravo aimed to continue its founders’ traditional buy-and-build approach. GTCR’s first fund without Thoma and Cressey raised $870 million, for instance, while Thoma Cressey’s debut closed on $450 million in 1998.
Thoma Cressey eventually morphed into Thoma Cressey Bravo. In 2008, when Cressey left the firm to launch Cressey & Co., Thoma Bravo was born—and soon, the firm’s transformation began in earnest. Its next three funds are a decent barometer of the growth: an $822.5 million fund in 2009, a $1.25 billion effort in 2012 and a $3.65 billion vehicle in 2014. With the close of a $7.6 billion fund last year, Thoma Bravo seems to have surpassed GTCR in the PE fundraising pecking order.
Thoma Bravo still applies the sorts of buy-and-build tactics that helped the firm’s founders make their names. But the group has also begun to pursue larger deals more often. Of the five buyouts in Thoma Bravo’s history that were larger than $2 billion, four occurred since December 2014, according to the PitchBook Platform—and all four were in the software industry.
In general, the firm eyes investments of at least $100 million and doesn’t shy away from deals reaching 10 figures, pursuing buyouts, carveouts, recapitalizations and growth rounds. It focuses on the enterprise, infrastructure and security branches of the software sector and on tech-enabled business services. Investing primarily in the US, Thoma Bravo’s targets also tend to have at least $20 million in EBITDA and established management teams.
One notable difference from GTCR is the frequency of new investments. While Thoma Bravo has never sealed more than 21 transactions in any single year, GTCR has topped that mark every year since 2011.
Carl Thoma, Managing Partner
Between Golder Thoma, GTCR, Thoma Cressey and Thoma Bravo, the elder statesman of the firm has worked at a buyout shop that bore his name for nearly four decades. His only other previous stop was at First Chicago, where Thoma initially crossed paths with Stanley Golder. Thoma is also a former president and chairman of the NVCA. He serves on the boards of companies including analytics software provider Infogix and Internet Pipeline, a developer of SaaS solutions. Away from the office, Thoma is a prolific art collector and the owner of a vineyard in Oregon.
Orlando Bravo, Managing Partner
Bravo possesses one of the most unusual résumés of any private equity executive. Born in Puerto Rico in 1970, he moved to the US as a teen to attend the legendary Nick Bollettieri Tennis Academy; Bollettieri’s other former students include Andre Agassi and Maria Sharapova. Instead of pursuing a pro career, Bravo went to Brown and then grad school at Stanford. He joined Thoma Cressey upon its formation in 1998 and quickly rocketed up the firm’s ranks before becoming a name partner. Bravo manages the firm’s San Francisco office, while Thoma is based in Chicago.
Scott Crabill, Managing Partner
Based in San Francisco, Crabill has been with Thoma Bravo since before it adopted its present name, joining the firm in 2002 after previous stints at Summit Partners and J.H. Whitney & Co., plus some other outfits. He represents the firm on the board of software providers PowerPlan, SRS Software and Mediware Systems, among other companies, and has helped lead investments in cybersecurity providers Tripwire, Entrust and Vision Solutions.
Lee Mitchell, Managing Partner
After participating in the formation of Thoma Cressey in 1998, Mitchell has been with the firm ever since, serving on the boards of technical school operator Porter & Chester Institute and Local Media of America, a San Diego-area owner of radio stations. He brings serious media expertise: Before making the jump to private equity, Mitchell was the president and CEO of Field Enterprises, which at the time was the owner of the Chicago Sun. He’s still based in Thoma Bravo’s Chicago office.
Holden Spaht, Managing Partner
Spaht has worked at Thoma Bravo since 2005 and was promoted to managing partner in the firm’s San Francisco office in 2013. He previously spent time at Morgan