This guy has bought 500 software companies.
He uses a secret 110-point playbook to turn billion-dollar companies into profit machines.
The billionaire you need to know
Meet Robert F Smith, the founder and CEO of Vista Equity Partners.
He's famous for the quote:
“All software companies taste like chicken.
They’re selling different products, but 80% of what they do is pretty much the same.”
Let's dive into the approach:
Vista holds 70+ companies with 70,000 employees in 175 countries.
They manage over $100 billion in assets now.
Combined they are a top 5 enterprise software company.
They are known for their well-defined system for growth.
It all started with auto dealer software.
Robert started his career as a banker.
He met an auto-dealership software maker and discovered their margins were way better than other software companies.
They had systems for everything.
Robert told them to buy other companies with their cash.
They told him to do it.
In 2000, the Brockman family committed $1 billion and Robert started Vista.
They were the sole investor.
Most of Robert's Goldman Sachs colleagues thought he'd lost his mind.
Back then banks wouldn't lend to software companies.
Software doesn't have hard assets to borrow against.
Vista persuaded banks that subscription-based businesses can tolerate debt.
Robert's first buyout fund returned 29.2% annually net of fees.
"Software contracts are better than first-lien debt.
A company will not pay the interest on its first lien until after they pay its software maintenance or subscription fee.
We get paid our money first. Who has the better credit? He can't run his business without our software."
Vista is famous for its 110-point playbook.
It is a closely guarded secret.
By sticking to the rules in the playbook, their software companies transform.
Add some leverage and you get Vista's amazing returns.
“We don’t underwrite to hope. We underwrite based on critical factors for success under our control.”
Most of the best practices run three to ten pages, with tons of attachments and examples. They are now numbered in the hundreds of PDFs.
Printed out, they fill binders.
The playbooks are stored in a password-protected online library, available only to authorized portfolio company managers.
Even the top execs of portfolio companies only get access to the sections that they need to know about.
Sales can see sales. Marketing can see marketing.
Vista is a factory.
A deal comes in and it gets compartmentalized.
Vista applies experts to each piece of the company.
After it goes off the assembly line, the margins are higher.
Cost-cutting is critical to Vista’s model.
They move from expensive cities to cheap ones like Dallas.
Many employees won’t make the move, allowing Vista to hire cheaper replacements.
So what's next for Vista?
They have been more active than ever.
Many distressed public market enterprise software companies are prime targets for them.
They are taking down bigger and bigger companies.
For more check out my full business breakdown on Vista Equity.
For more, check out our podcast on Mark Leonard (Constellation Software), Robert F. Smith (Vista Equity), and Joe Liemandt (ESW Capital).
If you are interested in buying, growing, and selling small companies,check out my course & community on it at IndiePE.com.