Industrial Tech M&A: Thoma Bravo takes QAD private for $2 billion

Thoma Bravo agreed to acquire QAD Inc. (Nasdaq: QADA), a Santa Barbara, Calif.-based provider of manufacturing and supply chain solutions in the cloud, for about $2 billion. QAD is a leading provider of next-generation manufacturing and supply chain solutions in the cloud. Thoma Bravo is one of the premier technology-focused private equity firms with particular expertise on the software and technology-enabled services sector.

The company has $317M of trailing twelve month revenue, 60% gross margins and $14M of operating income. Growth at the company has been flat-to-down for the past 3 years. The digitization of manufacturing and supply chain is currently experiencing meaningful growth so with QAD’s growth stagnating it means the firm is losing market share, perhaps to earlier stage companies.

So why is Thoma Bravo interested?

Thoma Bravo is known for bolting on acquisitions to their platform portfolio companies. Bolt-ons work well when a central, trusted platform/brand can add new products and immediately offer that technology to their existing customers through sales channels. QAD is exactly that trusted brand in the manufacturing and supply chain market. I expect Thoma Bravo will help QAD acquire some newer products and technologies and add these products into QAD’s existing sales channels.

The Metrics

6.4x trailing twelve month revenue, very low end of revenue multiples, but consistent with a no-growth industrial technology company. These new bolt-on products will drive growth and immediately expand the revenue multiple of the business. If QAD can move to even 15% annual growth, there would likely drive a nearly 50% increase in QAD’s valuation revenue revenue multiple. (10x TTM revenue). Be on the lookout for bolt-on acquisitions in the space in the coming quarters…