Citrix Debt Financing Challenges: A Warning Signal for Private Equity Buyouts

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Private equity’s $16.5 billion buyout of Citrix Systems is still missing one important ingredient: A $15 billion debt sale to finance the deal. It looks like that debt sale will need to be reworked amid rising interest rates — and the funding plan has been pushed back until after the U.S. Labor Day holiday, Bloomberg reported.

Updated August 15, 2022: Bank of America Corp. plans to start fresh talks with investors on August 15 to sell parts of a $15 billion debt financing for the buyout of Citrix, a deal that has been difficult for underwriters to offload, Bloomberg reported.

Read between the lines and there’s an important lesson here for MSPs, MSSPs, technology and cybersecurity companies. Indeed, private equity firms may appear to have endless piles of cash ready for more acquisitions. But the reality is quite different in many deals.

Private Equity and Debt Financing: What MSPs Can Learn From Citrix Deal

The reality check: Private equity firms had $1.78 trillion in dry powder as of February 2022, Preqin estimates. That’s a massive financial stockpile. However, many private equity deals involve debt financing, and that debt financing could get harder to find amid rising interest rates, Wall Street volatility, falling SaaS company market valuations, and concerns about a recession.

Think of it this way: Evergreen Coast Capital (an affiliate of Elliott Management) and Vista Equity Partners (the former owner of Datto) announced plans to acquire Citrix for $16.5 billion in January 2022. But fast forward to July 2022, and Bloomberg describes how the changing economic climate is now influencing the deal:

“Banks committed to the financing in January [2022], but since then, the cost of borrowing has increased significantly above the maximum yields they promised on the debt, leaving them on the hook for about $1 billion in losses. Issuance of new debt has slowed to a trickle, and almost all deals that are getting done are pricing at steep discounts to par.”

In a separate Bloomberg report, the news service said:

“Big changes to the original financing plan may still be necessary in order to reach a broader group of investors as credit conditions remain challenging, said the people, who asked not to be identified because they’re not authorized to speak publicly.”

MSP M&A: Ask Where’s the Money Coming From

Advice for MSPs:

  1. Stay humble;
  2. keep growing your EBITDA and annual recurring revenue (ARR); and
  3. if a potential buyer comes knocking on your business door… be sure to ask exactly how they plan to finance the deal.

Story originally published July 21, 2022. Updated multiple times thereafter with additional insights.

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