When selecting their targets, leveraged buyout firms have traditionally favored boring, old-economy companies. So when Bain Capital, Silver Lake Partners and Warburg Pincus together spent $2.1 billion (half equity, half debt) in May 2004 to buy Plano, Texas, software developer UGS from Electronic Data Systems, some questioned their wisdom. “Clearly, there was skepticism,” says Patrick Hackett, 47, co-head of Warburg Pincus’s technology, media and telecommunications group.
Not for the first time, the buyout firms have confounded the skeptics. Last month German engineering firm Siemens paid $3.5 billion for UGS, giving the private equity firms a return of two and a half times on their investment.
Though the firms had been considering an IPO to sell a small stake in UGS, they did not expect to say good-bye so soon. They had been trying to build the company’s fast-growing collaborative product data management division; Hackett anticipated that the triumvirate would own UGS for five to seven years. “Frankly, because of the preemptive approach taken by Siemens, we haven’t been able to do as much as we thought,” he says.
Hackett expects more LBO firms to warm up to the software sector. “There was enough of a profile in this investment that other private equity firms will consider putting more energy into their technology practices,” he says.
