Thoma Bravo has completely lost its $5 billion investment in Medallia, a software company it acquired in 2021, by handing control over to a consortium of lenders including Blackstone, Apollo, and KKR. This event represents one of the largest wipeouts in the history of the private equity industry, exceeded only by the collapse of Texas utility TXU.
The deal sees the Blackstone-led group taking control and injecting an additional $150 million to reduce Medallia's debt load. Thoma Bravo's acquisition of Medallia for $6.4 billion was financed with significant debt, which ballooned due to interest rate hikes by the Federal Reserve in 2022. Lenders had previously requested Thoma Bravo inject over $500 million to cut debt, but the firm refused, leading to this record loss.
Orlando Bravo, co-founder of Thoma Bravo, publicly admitted that the firm overpaid for Medallia, acknowledging it as a "big mistake" from a 2021 deal. He noted that the firm had underwritten rapid growth that did not materialize. Medallia also faced challenges from a retrenchment in software spending, management turnover, and competition from rivals like Qualtrics.
This situation highlights growing concerns about private equity software takeovers from the early 2020s, when high valuations were common. The rise of AI tools adds further complexity, raising questions about the future business models of many software companies. Despite the challenges, lenders believe Medallia's business is performing adequately and that the new capital structure will stabilize the company, even though they have cut their valuation on Medallia loans to about 60 or 70 cents on the dollar.
