Orlando Bravo, founder and managing partner of private-equity firm Thoma Bravo, told attendees at the Semafor World Economy event that the recent downturn in software-as-a-service stock prices has opened up unusually attractive buying opportunities.
"There are the most incredible buying opportunities right now in the market," Bravo said, referring to the valuation weakness that has affected many SaaS companies. Thoma Bravo manages $183 billion in assets, according to material cited during the conference.
He attributed the fall in public valuations this year to investor concerns about competition from artificial intelligence - technology that has already shown utility for coding and other software tasks. Those concerns have pressured prices, Bravo said, making certain companies more appealing to buyers that follow Thoma Bravo's investment framework.
Under that framework, the firm looks for businesses that are the highest-quality operator in a defined niche, typically the market leader. Equally important, the targeted company needs a management team with deep domain expertise and visible momentum from applying AI to accelerate growth.
"If we can get those three things at these bargain prices, we are huge, huge buyers of these companies right now," Bravo said, emphasizing the firm’s willingness to buy when those criteria align with lower market prices.
He drew a distinction between SaaS operators that are not yet profitable and niche players that already generate income. According to Bravo, companies that are not producing earnings now may struggle to survive in the current environment. By contrast, already-profitable niche software firms that possess a defensible moat are likely to endure and potentially thrive.
The comments reflect Thoma Bravo's focus on combining quality market position, experienced leadership and AI-driven momentum when evaluating acquisition targets amid a period of softer valuations in the software sector.
Key points
- Thoma Bravo's founder says current SaaS valuation weakness creates strong buying opportunities for the firm.
- The firm targets niche-leading, high-quality software companies with management depth and AI-driven growth momentum.
- Unprofitable SaaS businesses face survival challenges, while profitable niche players with defensible moats are better positioned.
Risks and uncertainties
- Competition from AI has driven down market valuations for SaaS companies, creating uncertainty for companies across the software sector.
- SaaS companies that are not currently generating income may not survive in the present market environment, posing downside risk for investors and acquirers.
- The attractiveness of targets depends on meeting all three criteria - market leadership, experienced management and AI momentum - which may limit the number of suitable acquisition candidates in the technology sector.