Permira's Valley Pioneers Chart Path to $4.2 Billion Dealmakers

(Bloomberg) -- When former Adobe Systems Inc. CEO Bruce Chizen agreed to join Permira's new Silicon Valley office in 2008, one of his first questions was how to spell the buyout firm's name.

Along with Brian Ruder, the firm's co-head of technology who joined Permira at the same time, Chizen was betting on something of an unknown quantity in the Valley: the first British private equity firm to set up shop on the West Coast, and one that was hoping to live up to the Latin meaning of its name -- ‘surprisingly different.'

Fast forward nine years, and both men are still a firm fixture of Permira's Menlo Park operations. Ruder co-heads a nine-strong team that's deployed more than 4 billion euros ($4.2 billion) on deals since 2011, while Chizen acts as senior adviser and is chairman of one of its biggest investments, data-software provider Informatica.

“Coming out of Adobe I wasn't particularly familiar with private equity as an industry, let alone individual firms,” Chizen said in a telephone interview. “We agreed to try working together for a year and no hard feelings if it didn't work. It's now been nearly a decade.”

For a London-based firm that traces its roots to Schroders Plc, the more than 200 year-old British financial institution, Silicon Valley was a bold move. Technology investment specialists like Bain Capital, TPG and Silver Lake were already stalwarts of the scene, and had weathered the dot-com crisis of 2000. But memories of the crash were fading, and Permira wanted a front-row seat for the next round of deals.

West Coast

While the firm had opened a New York outpost in 2002, its executives felt that a West Coast presence was needed to access deals in Silicon Valley. Permira was also flush with new firepower, having raised 11.1 billion euros for its fourth fund, more than its previous three pools combined, according to data compiled by Bloomberg.

Richard Sanders, now co-head of technology at the firm, moved to the Valley in 2007 to start building a deal-sourcing network and to recruit a partner. He was led to Ruder, a partner at Francisco Partners focused on software investments. Ruder also had experience as an entrepreneur, having built a college savings-based loyalty program while at Harvard Business School.

“It was a 1999 startup -- any idea got ramped quickly, a good one was crazy,” Ruder said over lunch at Permira's offices in Menlo Park, dressed in the West Coast business uniform of jeans, open-neck shirt and blazer. “We raised $25 million dollars on an $80 million valuation on the heels of a few people and a PowerPoint presentation.”

When Sanders came knocking Ruder wasn't looking for a move, and it took about nine months to convince him to jump to Permira. Ultimately, Ruder said, he was convinced the firm's plan wasn't a case of “let's experiment,” but rather was “let's do this, and commit to it.”

Click here to see Ruder talk about why PE investment in tech is rising

It was a bumpy start. Months after the Menlo Park office opened the financial crisis began to accelerate, pinning Permira, like many of its peers, against the wall. Valuations of some flagship investments, including retailer Hugo Boss AG and Freescale Semiconductor Ltd., collapsed and the firm moved to reorganize and shore up its portfolio. Several executives, including then-managing partner Damon Buffini, stepped back and its fund size was cut by 1.5 billion euros.

The relative lack of activity gave the team room to begin building their brand in the technology community with less competitive pressure, Sanders said in a telephone interview.

First Deal

Partly as a result of the market turmoil, the Silicon Valley team waited almost three years to complete its first acquisition: Renaissance Learning Inc., an online education company based more than 1,500 miles east of California in Wisconsin Rapids, Wyoming.

Permira believed it had uncovered an overlooked gem while the company's founders, Terry and Judi Paul, felt that they'd found the right steward for their business. The Pauls even agreed to take less money than public shareholders in order to stave off a counter bid from Plato Learning Inc.

While the terms of the deal baffled market observers, it proved sound for Permira, which sold Renaissance in three years for $1.1 billion to peer Hellman & Friedman. The firm recouped more than four times its original $150 million investment, people with knowledge of the matter said. A buyout firm typically aims to make about 2.5 times its money over a five-year period.

Just two months after agreeing to buy Renaissance in 2011, Permira struck a $1.5 billion deal for Alcatel-Lucent SA's contact-center software business, Genesys Telecommunications Laboratories Inc. The acquisition gave Permira a chance to deploy its self-coined strategic agitator technique, replacing the autonomy that management often enjoyed in favor of a more quantitative approach.

“We moved a lot faster than I thought we'd move on a program of revamping our sales methodology and team,” Genesys CEO Paul Segre said in an interview at his Daly City, California, office. “The head of sales was replaced, along with the next tier of management, while direct-facing staff saw about 50 percent turnover.”

“They continually ask how fast we can go,” Informatica CEO Anil Chakravarthy said of Permira in an interview at his Redwood City office. “And their bias is always toward more.”

Unloved Assets

The West Coast team stuck to its playbook of scooping up unloved assets in its next deal, for genealogy website Ancestry.com Inc. in 2012. Like Renaissance, the company had struggled in public markets since its 2009 listing, falling to $21 a share from $45 on concerns it would be a casualty of reduced discretionary spending post crisis.

Despite steady growth at both Genesys and Ancestry.com, Permira had less success when it attempted to fully exit the pair in 2015. The initial auction processes were pulled due to overly lofty valuations, people with knowledge of the matter said, resulting instead in a partial exit of each company the following year. Still, the firm has reaped about two and three times its money on Genesys and Ancestry, respectively, with further upside still on the table, the people said, asking not to be identified as the details aren't public.

Permira's proving ground on complex deals boosted its credibility with M&A advisers, Ruder said. The firm won auctions for Legalzoom.com Inc. and EBay Inc.'s Magento marketing business, and made its biggest acquisition in the region -- data and cloud software analytics company Informatica, for which it paid $5.3 billion in 2015.

Permira doesn't try to be all things to all people, instead picking its sweet spots, said George Boutros, chief executive officer of M&A boutique advisory firm Qatalyst Partners, which has been involved in several Permira transactions, including Informatica and Genesys.

“A number of factors have made them successful in the Valley, including their ability to pick spots where they have a unique, differentiated perspective,” Boutros said in an interview. ‘They are also very strategic in their approach and don't look at deals solely with a financial lens.”

More Competition

While Permira has steadily ridden the tide of West Coast dealmaking, competition is increasing. Thoma Bravo and Vista Equity Partners have grown from mid-market firms into tech-focused titans with almost $20 billion in capital to deploy, according to data compiled by Bloomberg. Meanwhile some of the largest East Coast firms, such as KKR & Co. and Carlyle Group LP, have set up or expanded in Silicon Valley. Even another U.K. firm, CVC Capital Partners, opened a San Francisco office in 2015.

Ruder said that while the U.S. market is “heated” for new deals, Permira is still hunting locally for potential acquisitions. It's focusing on opportunities where “the thesis is a little unusual or the company or technology isn't well understood.”

With equity markets at record highs, future success for Permira and its peers is contingent on their ability to create value while buying in the pricey environment. The tens of billions of dollars raised by rivals isn't the only competition; big technology companies are also seeking strategic acquisitions, as shown in Cisco Systems Inc.'s recent $3.7 billion deal for AppDynamics Inc. just hours before the software maker planned to price its initial public offering.

For his part, Ruder is in no hurry for Permira to contribute to the expected uptick in technology listings that could follow Snap Inc.'s hot trading debut last week, which saw the disappearing-photo app maker's shares climb 44 percent on its opening day.

“I've never had a portfolio company go public,” said Ruder. “I'd be happy to retire with that record held intact.”

To contact the reporter on this story: Kiel Porter in New York at kporter17@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Devin Banerjee