Private equity players Francisco Partners and TPG Capital may have secured a deal to buy integration platform-as-a-service (iPaaS) provider Boomi from parent company Dell Technologies for US$4 billion, but whether the investment pays off remains to be seen.
When it comes to private equity, the aim of the game is to buy something, restructure it, and sell it again at a profit. The point is how much the investment can return to the investors.
So, if the deal to acquire Boomi goes through without a hitch by the close of 2021 as planned – and there’s no reason to suspect it won’t – the business will at some point in the future be up for sale again, at least in one form or another.
There’s probably enough brand equity and cohesion within the existing Boomi entity to try and sell it off in one piece to a single buyer, but you never know with private equity.
Regardless of how Francisco Partners and TPG Capital choose to package Boomi up to sell, one thing is clear, the acquiring equity firms will ultimately want to ‘optimise’ Boomi to resell the operation in whole or in part for more than the $4 billion they are shelling out after having added their ‘value’ to the business.
The big question here, according to Geoff Woollacott, senior strategy consultant and principal analyst at industry analyst firm Technology Business Research (TBR), is all about who is going to want Boomi?
“It is a broad question in terms of customers and potential buyers,” Woollacott said in a blog post. “Rarely are these equity firms eager to sink money into long-overdue R&D [research and development] to align an ageing portfolio to the current market situation.
“If they were home flippers, they would want to put a fresh coat of paint on the clapboards for a five-year fix, not strip the bottom four rows of siding, replace the sill damage, reside it and paint it for a 15-year fix,” he added.
According to Woollacott, there are some aspects of Boomi’s business that may present some potential problems. For example, Boomi lags with application programming interface (API) tool sets in an era often called the ‘API economy’, the analyst claimed.
Even companies with sound API management capabilities, such as MuleSoft, are now being called into question for not having API automation for push-button development capabilities, Woollacott noted, pointing out that there are a lot of emerging companies getting serious evaluation in early adopter enterprises as the next leap forward in the iPaaS tool set space.
With that in mind, Boomi’s sweet spot might well be the ‘late majority’ large and midsize enterprises, according to Woollacott, with many of those customers’ applications residing on-premises, and many of them employing bespoke or highly customised solutions.
“These data transport vessels are like the African Queen steamboat chugging along in the data river,” Woollacott said. “These data centre leaders will not find out-of-the-box API integrations into their bespoke applications from the leading SaaS apps they may be adopting at the start of their slow roll to native-cloud applications and data centre consolidations that are a threat to Boomi as well as the traditional hardware manufacturers such as Dell, Hewlett Packard Enterprise [HPE] and Lenovo.”
However, the number of potential buyers is likely to rapidly dwindle as the market trends that threaten that sweet spot support the continued acceleration of cloud migration, much of which has been sparked by the pandemic.
Boomi’s challenge going forward will be the work needed to take its core strengths for business-to-business/electronic data interchange (EDI) management and easy self-service reporting and integrations and build out its API and artificial intelligence (AI)/machine learning capabilities sooner rather than later, the analyst suggested.
From Woollacott’s perspective, this might all be a bit tricky to overcome, potentially making the company a tough sell when it comes time for the private equity firms to reap the harvest of their investment.
“In terms of who may want Boomi in their portfolio, the current owners likely eye Salesforce’s US$6.5 billion acquisition of MuleSoft as the kind of piñata they hope to crack open with this US$4 billion swing at a payoff,” Woollacott said. “To TBR, that is likely a swing and a miss due to the ageing portfolio issues referenced.”
In the case of Salesforce’s 2018 acquisition of MuleSoft, Woollacott noted that that deal provided the SaaS vendor with an integration layer to tie together its proprietary solutions, in addition to integrations with AppExchange, its app partner ecosystem.
"While MuleSoft was born in legacy IT, its combination with Salesforce provided MuleSoft with substantial capital to innovate and evolve its offerings for better alignment with Salesforce by enhancing its tool sets for cloud application integration," he said.
However, it is yet to be seen if such an approach will work for Boomi. It's unusual for private equity firms to get deals of this magnitude wrong. But Woollacott doesn't seem to be overly optimistic.
“Yes, SaaS [software-as-a-service] players will increasingly bake in iPaaS tool sets, but emerging SaaS players will be less inclined to worry about on-premises and bespoke integrations where Boomi excels as they will be to have out-of-the-box connectors to market-share-leading SaaS apps in other segments,” Woollacott said.
“This leaves potential buyers looking to consolidate ageing assets to profitably manage opportunity in declining markets,” he added.