One of the most lucrative corners of the financial markets has been the software leveraged buyout for years, in which companies such as Thoma Bravo, Silver Lake Partner and others have achieved top returns in the industry. Their unannounced target companies offer the digital infrastructure, the network management and applications to run companies in the cloud These companies generally employ stable, high-margin subscription business models The wider the range of software in different industries, the greater the potential

Until a week ago, SolarWinds
SWI
, a maker of software used by America’s largest corporations and government agencies, was a shaky IT software company that few outside of the industry knew by name. With little fanfare, it became the next billion dollar windfall for the private equity industry In a sector where companies have raised and invested hundreds of billions of dollars, the company is now ground zero for one of the biggest cyberattacks in American history as companies move their IT departments to the cloud and buyout deals take hold in the industry win, the hack underscores new risks for investors in what has become the top trade in the industry

SolarWinds sells products used by IT staff, developers, and administrators of their increasingly cloud-based corporate infrastructure 300000 customers worldwide have annual sales of over $ 1 billion. Its customers include most of the S&P 500 and many of the country’s major government agencies such as the state, commerce, treasury, homeland security, and the National Institutes of Health
With that magnitude, SolarWinds quickly rose to the top of a growing list of niche digital infrastructure and security companies with rising ratings, with its stock rising more than 20% in 2020, making new record highs This was supported by forecasts for sales of over 1 billion USD and adjusted profit margins of nearly 50% supported It was yet another example of how unannounced midsize tech companies are generating some of the biggest returns in the industry

Supporters Silver Lake Partners and Thoma Bravo had paid $ 1.3 billion apiece to take the company private in 2016 and about $ 2 billion in debt to close the deal. As a private company, SolarWinds was strengthening its ability to be Emerging database and virtual managed service provider business, which helped convert much of the company’s license revenue into subscriptions and maintenance contracts.After both PE companies sold small stakes in their 2018 IPO, they sat down for stakes in the Valued at over $ 2 billion apiece, the company plans to spin its MSP business in early 2021, a deal that some analysts valued at over $ 3 billion in early December liked the Canadian Pension Plan Investment Board, a longtime limited partner of Silver Lake and Thoma Bravo, the prospects of SolarWinds with a value of over 7 million iarden US dollars to buy a piece of the shares of PE companies and their fellow investors

Last week, cybersecurity provider FireEye
FEYE
warned of a hack into its business that dropped its shares.After further investigation, FireEye found the vulnerability originated in the SolarWinds software and affects thousands of customers, according to media reports that hackers believed to be linked to Russia , SolarWinds Infiltrated Customer Systems As They Sent Out Updates To Their Orion Software On Saturday, FireEye Warned SolarWinds Of The Hack It appears that SolarWinds clients have been vulnerable for many months and the security community has been trying to figure out the extent of the breach

The depth and potential impact of the hack remain unclear, according to the New York Times, there are concerns that other software vendors have also been used as a backdoor to infiltrate systems
NYT
, Reuters, and Wall Street Journal hacks are an increasingly common occurrence as the world goes digital and even the most mysterious software can now be used to compromise the most well-protected systems, as demonstrated in the NotPetya attack that involved tax planning software was carried out

Since Monday, SolarWinds stock has fallen roughly 25% and private equity backer holdings are down roughly $ 1 billion, with net debt of $ 1.5 billion and a leverage ratio of roughly 48x, Moody’s rating agency
MCO
SolarWinds B1’s debt rating was negative earlier this week

SolarWinds’ backers, Silver Lake and Thoma Bravo, have worked to manage the impact of the hack, which took place amid a planned change in CEO and the liquidation of the company, CPPIB, the newest investor in SolarWinds, has already lost a lot, at least temporarily

For the private equity industry, the hack is at least a major new risk as the biggest players in the industry increasingly target IT and cybersecurity software, according to Bain & Co Have companies closed over $ 300 billion worth of deals in the past five years. In addition to Thoma Bravo and Silver Lake, companies like Vista Equity Partners, Hellman & Friedman, TA Associates, TPG and Permira have made fortunes in software and cybersecurity buy-outs. Outs Earned While these companies have demonstrated their financial resilience through macroeconomic events like the Covid crisis and are generating cash flows that can be harnessed, there is a growing risk that hackers could use vertical or horizontal software to create existential IT risks

The hacks appear to be part of a cyber warfare trend between countries that, like Microsoft, has entered the corporate sector
MSFT
Brad Smith pointed out in comments to the New York Times yesterday, “Governments have long spied, but there is a growing and critical recognition that there needs to be a clear set of rules that overrides certain techniques”Smith told the Times that one of the things that needs to be banned is a widespread attack on the supply chain that creates a vulnerability to the world that other forms of traditional espionage do not have”

Right now, software companies like SolarWinds are clearly in the crosshairs. According to Wedbush analyst Dan Ives, the hack is a tailwind for security companies like Zscaler, CrowdStrike
CRWD
, CyberArk, SailPoint and Varonis Moving IT departments to the cloud should continue to create investment opportunities However, the relocation brings major non-financial risks for business owners

Private equity firms are well-versed at dragging companies through recessions, corporate failures, and even negotiating with disgruntled lenders. The SolarWinds Hack is a Different Size Right now, two of the world’s most famous and successful private equity firms are dealing with a crisis that has infected the highest rungs of government and business

I’m an associate and associate editor at Forbes, where I work in finance and investing. My pace includes hedge funds, private equity, fintech, mutual funds, mergers, and

I’m an Associate Editor and Associate Editor at Forbes, where I work in Finance and Investing. My pace includes Hedge Funds, Private Equity, Fintech, Mutual Funds, Mergers and Banks. I am a graduate of Middlebury College and Columbia University Graduate School of Journalism and worked at TheStreet and Businessweek Before becoming a financial writer, I was a member of the 2008 Fateful Analyst class at Lehman Brothers Email thoughts and tips to agara @ forbescom Follow me on Twitter at @antoinegara

SolarWinds Hack

World News – USA – SolarWinds Hack throws the key into the most profitable private equity market

Source: https://www.forbes.com/sites/antoinegara/2020/12/18/solarwinds-hack-throws-wrench-in-private-equitys-most-profitable-market/