Clearlake Sees Vision Deal As M&A Platform In IBM i Land

Clearlake Sees Vision Deal As M&A Platform In IBM i Land

Vision Solutions, the dominant player in the market for IBM i high availability software, is being sold by Thoma Bravo to Clearlake Capital Group. The transaction, which is expected to be completed by the end of June, will give Clearlake a platform for pursuing more acquisitions in the IBM i ecosystem, a spokesperson with the company told IT Jungle.

Thoma Cressey, as the San Francisco-based private equity firm was then known, obtained Vision Solutions with its acquisition of Idion Technology Holdings way back in September 2006. Soon after that, the company embarked upon a string of acquisitions, first nabbing iTera in November 2006 and then buying Lakeview Technology in June 2007. More than three years passed before Vision made its final significant acquisition by adding Double-Take Software to the mix.

Now under new ownership (or soon to be, anyway), Clearlake and Vision are plotting similar types of moves. In a background interview with IT Jungle, a person familiar with the matter says Clearlake and Vision are eager to get back into the M&A swing of things. Without getting too specific, the source says the principals see significant opportunities to build a bigger business by acquiring IBM i-based software vendors with the intent to sell add-on tools to Vision’s considerable IBM i installed base.

Citing Rocket Software and HelpSystems as examples of how this strategy can succeed in the IBM i space, the source says there is a big upside to acquiring software assets in and around the IBM i ecosystem. The focus appears to be squarely on IBM i, and not the Windows and Linux market, which Vision also services through its Double-Take products. More details are expected when the deal closes in about a month.

With 12,000 customers, including a number of marquee names in the Fortune 500, Vision has an impressive customer base. “We are thrilled to back Vision as a new platform investment and are enthusiastic to accelerate the buy and build strategy as Vision extends deeper into providing end to end software protection solutions for the data center,” said Behdad Eghbali, a managing partner of Clearlake, who will take a seat on the Vision board of directors.

This is Clearlake’s first foray into the IBM i ecosystem. The Santa Monica, California-based private equity firm has about $3.5 billion under management, and has positions in about 20 companies in a variety of industries, including the spa maker Jacuzzi, the plus-size woman’s clothing maker Ashley Stewart, and fracking material maker Smart Sand. It has several holdings in the technology and communications space, including two network performance management software plays, NetMotion Wireless and MYCOM; service management software maker HEAT Software; communications lifecycle management firm Calero; ConvergeOne, a provider of communication solutions and services; and Pomeroy Group, which provides IT infrastructure and managed services to mid-market firms.

The closest thing to a Vision in Clearlake’s existing portfolio is Syncsort, which develops ETL software designed to help IBM mainframe shops better use Apache Hadoop, including offloading ETL jobs from expensive System z servers to clusters of commodity servers. It’s unclear if Clearlake sees a similar demand for migrating jobs off IBM i iron to commodity gear, but it’s possible: the word “migration” did come up more than once during our conversation.

In any event, if there’s one direction that Clearlake clearly intends to take Vision, it’s to the cloud, which was mentioned by the Vision/Clearlake source in the context of migration. While Vision has played in the cloud for years via business partners, it’s not something that one would characterize as a strength for Vision, particularly when it comes to chasing the long tail of small and midsize shops that don’t yet have HA and can’t justify traditional HA setups because of the need to buy a second box.

In fact, in the cloud, Vision has been largely outmaneuvered by its smaller competitors, namely Maxava, which says 50 percent of its new business today involves cloud customers. Vision has tried to improve its cloud business in fits and starts over the years. It first talked about creating a cloud strategy back in 2012, and finally did launch a cloud initiative in 2013. But it wasn’t until the introduction of metered billing in MIMIX 8 eighteen months ago that the company really had anything that its MSP partners could easily sell without jumping through licensing hoops.

As far as the timing of the transaction goes, there are competing theories. Folks with Vision and Clearlake say it was Thoma Bravo’s plan all along to exit the investment in Vision after ten years, that that is how things are always done in private equity. In fact, the lifespan of a PE investment is typically four to five years, they say, and the fact that Thoma Bravo stuck with Vision for the full ten years is a testament to the success Vision has had.

Edward Vesely, who recently rejoined Vision to be its chief marketing officer and executive vice president, says the relationship with Thoma Bravo led to “substantial growth” and has delivered value to customers, partners, investors, and overall business. “As for the timing–it’s the result of a patient and deliberate execution of the plan that was established 10 years ago. It is by all measures a successful exit in the normal course of a private equity investment.”

But there’s a competing theory that isn’t so rosy, and that paints a picture of flat sales and considerable debt. Last November, Moody’s Investor Service downgraded Vision’s corporate bond, citing “declining license sales, particularly from the former Double-Take business, as well as significant debt maturities in 2016 and 2017.”

Moody’s downgrade affected $275 million of rated debt, and maintained a negative outlook for Vision, which had sales of approximately $143 million for the 12 months prior to July 31, 2015. At the time of Moody’s alert, the company’s adjusted leverage was 5X, which the ratings service considers high. Strong maintenance revenue from the IBM i business was cited as a bright spot that could bring that leverage under 4.5X, but Moody’s also cautioned about Vision’s propensity to do debt-financed dividends.

The Moody’s alert is moot, the Vision/Clearlake source says, because that old debt is being wiped away as part of the current deal. There will be new debt issued, and new equity brought to the table as well, to provide a fresh start and dry powder to propel Vision’s quest to drive M&A and become a consolidator of IBM i businesses.

Vision Solutions did not exhibit at the COMMON conference in New Orleans last week; it’s a show the company typically attends. Vision’s Vesely said the company had decided long ago not to attend this show, but to concentrate its efforts on a COMMON Europe event scheduled for later this year.

Rumors of cash flow problems and layoffs at Vision are not true, Vessey said. “There is absolutely no truth to the layoff rumor you’ve cited,” Vessey said via email.

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