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Meet Wall Street’s Best Dealmaker: New Billionaire Orlando Bravo

Orlando Bravo discovered his edge early. In 1985, at age 15, he traveled from his home in Mayagüez, Puerto Rico, a small town on the island’s western coast, to Bradenton, Florida, to enroll in the legendary tennis guru Nick Bollettieri’s grueling academy.

Bravo would wake at dawn, head to class at St. Stephen’s Episcopal School, then return to Bollettieri’s tennis courts at noon. He spent hours warring against peers like Andre Agassi and Jim Courier under the broiling sun. At sundown, after an hour to shower and eat, he would study, then retire to a sweaty, two-bedroom condominium in which players bunked four to a room like army barracks. Then he would do it all over again, six days a week, for a full year. “It was the tennis version of Lord of the Flies,” says his former roommate Courier.

The brutally competitive environment helped Bravo climb to a top-40 ranking in the U.S. as a junior. Then he peaked. “It was quite humbling,” recalls Bravo, who’s still fit from his weekly tennis games. “It was a different level of hard work altogether. It became clear I could operate at these super-high levels of pain.”

That grit and perseverance eventually propelled him to the top echelons of the private equity world. Few outside of finance have heard of the 49-year-old Bravo, but he is the driving force behind Wall Street’s hottest firm, the $39 billion (assets) Thoma Bravo.

In February, the French business school HEC Paris, in conjunction with Dow Jones, named Thoma Bravo the best-performing buyout investor in the world after studying 898 funds raised between 2005 and 2014. According to public data analyzed by Forbes, its funds returned 30% net annually, far better than famous buyout firms like KKR, Blackstone and Apollo Global Management. That’s even better than the returns from the software buyout firm Vista Equity Partners, its closest rival, run by Robert F. Smith, the African American billionaire who recently made headlines by paying off the college debt of Morehouse College’s entire graduating class. Since the beginning of 2015, Bravo has sold or listed 25 investments worth a total of $20 billion, four times their cost. His secret? He invests only in well-established software companies, especially those with clearly discernible moats.

“The economics of software were just so powerful. It was like no other industry I had ever researched,” says Bravo, seated in his office in San Francisco’s Transamerica Pyramid. He wears a tailored purple dress shirt and enunciates his words with a slight Puerto Rican accent. “It was just very obvious.”

Bravo’s firm has done 230 software deals worth over $68 billion since 2003 and presently oversees a portfolio of 38 software companies that generate some $12 billion in annual revenue and employ 40,000 people. Forbes estimates the value of the firm, which is owned entirely by Bravo and a handful of his partners, at $7 billion. Based on his stake in the firm and his cash in its funds, Bravo has a $3 billion fortune. Not only does that make him the first Puerto Rican-born billionaire, it’s enough for Bravo to debut at 287th place on this year’s Forbes 400 ranking of the richest Americans.

Like a good tennis player who’s worked relentlessly on his ground strokes, Bravo has made private equity investing look simple. There are no complicated tricks. He figured out nearly two decades ago that software and private equity were an incredible combination. Since then, Bravo has never invested elsewhere, instead honing his strategy and technique deal after deal. He hunts for companies with novel software products, like Veracode, a Burlington, Massachusetts-based maker of security features for coders, or Pleasanton, California-based Ellie Mae, the default system among online mortgage lenders, which the firm picked up for $3.7 billion in April. His investments typically have at least $150 million in sales from repeat customers and are in markets that are too specialized to draw the interest of giants like Microsoft and Google. Bravo looks to triple their size with better operations, and by the time he strikes, he’s already mapped out an acquisition or turnaround strategy.

The pool of potential deals is growing. On public markets, there are now more than 75 subscription software companies, worth nearly $1 trillion, that Bravo can target, versus fewer than 20, worth less than $100 billion, a decade ago. Investors around the world clamor to get into his firm’s funds, and lenders have checkbooks ready to finance his next big deal. “The opportunities today are the biggest I’ve ever seen,” Bravo says. “Right now we are in a huge, exploding and changing industry.”

Orlando Bravo’s isn’t a rags-to-riches story. He was born into a privileged life in Puerto Rico in the Spanish colonial city of Mayagüez, which for decades was the port for tuna fishing vessels supplying the local Starkist, Neptune and Bumble Bee canneries.

Starting in 1945, his grandfather Orlando Bravo, and later his father, Orlando Bravo Sr., ran Bravo Shipping, which acted as an agent for the massive tuna-fishing factory ships entering the port in Mayagüez. It was a lucrative business. His parents moved him and his younger brother Alejandro to what’s now a gated community in the hills of Mayagüez, where the brothers attended private schools and tooled about on the family’s 16-foot motorboat.

After taking up tennis at age 8, practicing on the courts of a local university and a Hilton hotel, Bravo and his family began making the two-and-a-half-hour drive from their home to San Juan on weekends to allow him to train against better competition. “What I loved about tennis was the opportunity,” he recalls. “I’m from Mayagüez, and I’m going to come to the big city and I’m going to make it,” he says. “Let’s go! The underdog!”

He quickly became one of Puerto Rico’s top players, which landed him at Bollettieri’s academy and then on Brown University’s tennis team. “I was so scared I wouldn’t make it through,” Bravo says of the Ivy League, so he took most classes pass/fail as a college freshman. But he quickly found his footing and graduated Phi Beta Kappa in 1992 with degrees in economics and political science. That helped him get a prestigious job as an analyst in Morgan Stanley’s mergers and acquisitions department. There he paid his dues, clocking 100-hour weeks under the renowned dealmaker Joseph Perella.

“I learned I didn’t want to invest in risky things ever again. It was too painful.”

Bravo’s Spanish fluency put him in front of clients as other analysts slaved away in data rooms. Working on Venezuelan billionaire Gustavo Cisneros’ 1993 acquisition of Puerto Rican supermarket chain Pueblo Xtra International opened his eyes to the world of buyouts. But mostly he says he learned he didn’t want to be a banker.

Bravo eventually headed west to Stanford University. He’d already been accepted into its law school, but he also wanted to attend the business school. He called insistently and eventually got accepted to pursue both. He worked during a summer at Seaver Kent, a Menlo Park, California-based joint venture with David Bonderman’s Texas Pacific Group that specialized in middle market deals. Upon graduation in 1998, Bravo wasn’t offered a position there or at TPG, and he spent months cold-calling for a job. After about a hundred calls, Bravo’s résumé caught the eye of Carl Thoma, a founding partner of the Chicago-based private equity firm Golder, Thoma, Cressey, Rauner (now known as GTCR), and they hit it off. “The biggest mistake Texas Pacific made was…that they didn’t make him a job offer,” says Thoma, 71, who Forbes estimates is also a billionaire based on an analysis of public filings.

One of the pioneers of the private equity industry in the 1970s, Thoma is a tall and mild-mannered Oklahoman whose parents were ranchers. Thoma and his partners practiced a friendlier version of the buyouts popularized by Michael Milken, preferring to buy small businesses and expand them using acquisitions. When Bravo came aboard in 1998, Thoma and partner Bryan Cressey had just split from Stanley Golder and Bruce Rauner, who later went on to become governor of Illinois, creating Thoma Cressey. Thoma sent Bravo to San Francisco to hunt for investments and eventually expand the firm’s Bay Area presence.

Bravo’s first few deals, struck before he turned 30, were disasters. He backed two website design startups, NerveWire and Eclipse Networks, just as the dot-com bubble popped. The two lost most of the $100 million Bravo invested. “I learned I didn’t want to invest in risky things ever again,” Bravo says. “It was too painful to live through.” Thoma Cressey was also struggling elsewhere, with underperforming investments in oil and gas and telecommunications. It was among the worst performers in the private equity industry at the time.

“Every time we picked up our heads to peek at a deal that wasn’t software, the software deal looked a lot better to us.”

But the failure led to an epiphany that soon made Bravo and his partners billions. He realized his mistake was in backing startup entrepreneurs, an inherently risky move, when for the same money he could buy established companies selling niche software to loyal customers. With Thoma’s blessing, Bravo pivoted and became an expert on these arcane firms. Coming out of the dot-com bust, the market was littered with foundering companies that had gone public during the bubble and had few interested buyers. Bravo got to work. His first big move, in 2002, was to buy Prophet 21, a Yardley, Pennsylvania-based software provider to distributors in the healthcare and manufacturing sectors that was trading at a mere one times sales.

Rather than clean house, Bravo kept the company’s CEO, Chuck Boyle, and worked beside him to boost profits, mainly by rolling up competitors. When Boyle wanted to buy a company called Faspac, Bravo flew to San Diego to work out of the Faspac owner’s garage for five days, analyzing reams of contracts to see if the deal would work. “Orlando would help not only at the highest level with strategy but also when we got grunt work done,” Boyle recalls. After seven acquisitions, Bravo sold the business for $215 million, making five times his money.

Software quickly became Bravo’s sole focus, and Thoma Cressey began to thrive. By 2005, Bravo and Thoma had recruited three employees, Scott Crabill, Holden Spaht and Seth Boro, to focus on software applications, cybersecurity and Web infrastructure. All remain with the firm today as managing partners.

Bravo’s big opportunity came during the financial crisis when Thoma put Bravo’s name on the door and split with his partner Bryan Cressey, a healthcare investor, creating Thoma Bravo. From that moment on, the firm invested only in software, with Bravo leading the way.

A string of billion-dollar buyouts followed—Sunnyvale, California-based network security firm Blue Coat, financial software outfit Digital Insight of Westlake Village, California, and Herndon, Virginia’s Deltek, which sells project management software—all of which more than doubled in value under Bravo’s watch. The firm’s inaugural 2009 software-only fund posted a 44% net annualized return by the time its investments were sold, making investors four times their money and proving the wisdom of discipline and specialization. “Every time we picked up our heads to peek at a deal that wasn’t software, the software deal looked a lot better to us,” he brags.

It’s late May, and Orlando Bravo’s 20th-floor offices overlooking the San Francisco Bay are filled with dozens of tech executives from its portfolio companies. Folks from Houston’s Quorum Software, which makes technology systems for oil and gas companies, mingle with cybersecurity experts from Redwood Shores, California’s Imperva. They juggle their rollerboard suitcases and thick financial books as Thoma Bravo partners map out corporate strategies on dry-erase whiteboards. Those on break hammer away at keyboards in small workrooms or demolish chicken sandwiches in a no-frills kitchenette.

This is one of Thoma Bravo’s monthly boot camps for new acquisitions, grueling daylong sessions that are critical to its success. Partners regularly buzz into Bravo’s spartan glass-walled offices, while in the background the drilling and hammering of construction workers making room for 13 new associates disturbs the peace.

With a fresh $12.6 billion war chest, Bravo is now eyeing $10 billion-plus deals and expects to begin buying entire divisions of tech giants.

After two decades studying software, Bravo recognizes clear patterns. For instance, when a company pioneers a product, its sales explode and then inevitably slow as competitors emerge. Often a CEO will use this cue to stray into new markets or overspend to gin up sales. Bravo calls this “chasing too many rabbits.” To fix it, he and his ten partners work alongside 22 current and former software executives who serve as consultants. They begin tracking the profit-and-loss statements for each product line and pore over contracts in search of bad deals or underpriced products. Critically, by the time a Thoma Bravo acquisition check clears, existing management has agreed that this rigorous approach will help. Bravo calls it “making peace with the past.”

There are also layoffs. Those can total as much as 10% of the workforce, for which Bravo doesn’t apologize. “In order to realign the business and set it up for big-time growth, you first need to take a step back before you take a step forward. It’s like boxing,” he says. “These are unbelievable assets with great innovators, and they are usually undermanaged.”

Mark Bishof, the former CEO of Flexera Software, an application management company outside of Chicago that Bravo bought in 2008 for $200 million and sold for a nearly $1 billion profit three years later, has a succinct description for this wild success. “He just kind of cuts all of the bullsh*t,” Bishof says. “It’s refreshing.” Flexera’s profits rose 70% during Bravo’s ownership, largely thanks to four major acquisitions. “Orlando’s like the general in the foxhole with his sergeant. You know he’s knee-deep in there with you,” Bishof gushes.

Under Thoma Bravo’s watch, companies on average saw cash flow surge as margins hit 35%, as of 2018, nearly triple those of the average public software company at that time. “It’s like training for the Olympics. . . . You have a finite goal to make it [in year four], and you make it very, very clear,” Bravo says. Today’s roaring market adds potency to the playbook. Lenders are now gorging on software debt, and stock market multiples for these businesses are surging.

“I learned more about building an efficient software company over the last four and a half years than in the first 30 years of my career.”

A recent example is Detroit’s Compuware, a decades-old pioneer of software applications to manage mainframe computer systems. In 2013, this Nasdaq-listed giant was all but left for dead and up for sale. There was minimal interest, other than from Bravo and partner Seth Boro, who were keen on Dynatrace, software that helped companies move databases to the cloud, which Compuware had acquired in 2011. Thoma Bravo used $675 million in cash and raised $1.8 billion in debt to buy Compuware and then split off Dynatrace as a separate company. The pair began to move Dynatrace from selling database licenses, once the bulk of its business, to cloud subscription services, now 70% of sales. This past August, Dynatrace went public, and Thoma Bravo’s 70% stake is now worth over $4 billion, with the remainder of Compuware worth nearly a billion more. “I learned more about building an efficient software company over the last four and a half years than in the first 30 years of my career,” says Dynatrace CEO John Van Siclen.

With a fresh $12.6 billion war chest for its 13th fund raised in 2018, Bravo is eyeing $10 billion-plus deals and expects to begin buying entire divisions from today’s technology giants. But thanks in part to the success of his firm, he now faces more competition. Heavyweights like Blackstone and KKR are increasingly sussing out software deals, not to mention his longtime rival Vista Equity. And he’s not immune to mistakes. Bravo’s $3.6 billion 2015 acquisition of San Francisco-based digital network tracker Riverbed Technology is currently struggling because of slowing sales and too much debt. He isn’t worried. “There are bigger and better companies to fix than there were ten years ago,” Bravo says.

His biggest challenge these days is likely back home in Puerto Rico where it all began. Bravo announced in May that he is contributing $100 million to his Bravo Family Foundation that will be used to promote entrepreneurship and economic development on the island.

This new foundation was birthed by Hurricane Maria, which devastated the island two years ago. Bravo was in Japan raising cash for yet another massive fund and frantically calling San Juan trying to locate his parents, who were living in the capital. They were fine, but the island wasn’t.

Five days later, he flew his Gulfstream jet with 1,000 pounds of supplies—water, granola bars, meal kits, satellite telephones, diapers, intravenous tubes and hydration pills—to Aguadilla, near Mayagüez. When an airport worker opened the door of his plane, Bravo says, the look of fear on his face was unforgettable. “All you could say was ‘I’m sorry for what happened to you.’ ”

He returned two weeks later in a larger plane with 7,000 pounds of supplies. Then he came in a massive DC-10 cargo plane before ultimately chartering two container ships carrying 600,000 pounds. “It was just like cold-calling for deals,” Bravo says of rounding up all the donations. He personally put in $3 million in just the first 30 days, and committed $10 million altogether.

When the Federal Emergency Management Agency became fully operative there, the island’s richest native turned his attention to Puerto Rico’s future. Though 44% of Puerto Ricans live below the poverty line, Bravo believes in the potential to foster entrepreneurship, citing that a tenth of the population has tried to build a business.

Armed with his money, his foundation is looking to back Puerto Rican technology entrepreneurs, even ferrying them to Thoma Bravo’s offices for training. Bravo admits to being tired of the debate over Puerto Rico’s statehood and holds his tongue when asked about President Trump’s performance during Maria. “My passion, which is the same as with companies, is to move beyond the strategic, long-term pontification, and into the operational and tactical moves that make you move forward today,” he says. “Economies go down, companies miss their numbers, trade stops, product issues happen and people quit. [The question is] do you have a creative approach to problem solving?” Bravo says. “Some people are stuck . . . and some people love putting the pieces together. I just feel like every operational problem can be solved. There’s always a solution.”

Recommended: Read Forbes’ Other Dealmaking Cover Stories

Gentlemen At The Gate: With Trillions Pouring In, KKR And Its Peers Must Build Up Rather Than Break Up

How Billionaire Robert Smith Conquered Private Equity And Technology

Stephen Schwarzman And Blackstone: Wall Street’s Unstoppable Force

Brookfield’s Bruce Flatt: Billionaire Toll Collector Of the 21st Century

Get Forbes’ daily top headlines straight to your inbox for news on the world’s most important entrepreneurs and superstars, expert career advice, and success secrets.

I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a part of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to agara@forbes.com. Follow me on Twitter at @antoinegara

Source: Meet Wall Street’s Best Dealmaker: New Billionaire Orlando Bravo

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Orlando Bravo, managing partner of Thoma Bravo and founder of the Bravo Family Foundation, https://www.bravofamilyfoundation.org/, announced he personally will contribute $100 million to his foundation to promote entrepreneurship and economic development in Puerto Rico, where Bravo was raised, and his family still lives.

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Stock Market Looking Up Amid Some Trade-Related Optimism

Key Takeaways:

  • Fed’s Bullard says U.S. manufacturing appears to be in recession
  • China lowers its benchmark lending rate
  • U.S., China set to conclude second day of lower-level talks today

Welcome to quadruple witching day. It happens every quarter on the day when futures and options on indices and stocks all expire on the same day.

Maybe it’s not as ominous as its name might suggest, but these remain days when investors might want to exercise special care as there could be some heightened volatility as people unwind baskets of stocks or futures.

On Wall Street, investors this morning seem to be a bit upbeat, heartened by developments on the trade front and by yet another major economy cutting interest rates.

Today In: Money

China cut its one-year lending rate, joining the Federal Reserve and the European Central Bank in dovish steps designed to help stimulate economies by reducing borrowing costs. The moves come amid rising worries about global economic growth as the trade war between the United States and China drags on. (See more below.)

On the trade front, China and the United States are scheduled today to conclude two-day negotiations that began yesterday, seemingly with the aim of paving the way for higher level discussions next month.

The discussions come as there has been a bit of a thaw recently in the chilly trade relationship between the world’s two largest economies. Among recent developments, the Trump administration has excluded hundreds of Chinese items from a 25% tariff.

Resistance Near Record Highs

We’ve been talking for a while about how the U.S.-China trade war seems to be creating a cap that the stock market may not be able to meaningfully breach until the dispute between the world’s two largest economies comes to some sort of definitive conclusion.

That narrative seemed to be in play Thursday with stocks near all-time highs but losing momentum throughout the day. The S&P 500 Index (SPX) closed above 3000 after making it above 3,020. But without a catalyst to push stocks into record territory, this area between 3000 and the all-time high of 3027.98 looks to be an area of resistance.

True, the Fed didn’t give market participants much to get really excited about this week when the central bank delivered an as-expected rate cut. But it seems like the unresolved trade issue could be the bigger weight here.

While optimism around the two-day negotiations may have helped boost the market early Thursday, that sentiment may have been tempered by comments from a White House adviser in a media report that the United States could escalate the trade conflict if a deal isn’t reached soon. Meanwhile, a tweet from the editor of the official newspaper of the Communist Party of China said that “China is not as anxious to reach a deal as the U.S. side thought.”

Reading the Fed Tea Leaves

With mixed signals on the trade front, the market was left to scratch its head about what the Fed might do after its latest rate cut—not exactly a recipe for a rip-roaring day of gains in equities.

It’s arguable that the Fed has left the market in a holding pattern as investors seem unconvinced that the current central bank trajectory is as pro-growth as they want it to be.

But even though there seems to be wariness about the Fed’s language when it comes to interest rates, there could be some percolating excitement about a different type of stimulus that the central bank might have up its sleeve.

Still, without clear direction or conviction, investors seem to be holding off from making a big rotation into any one style of equities, leaving cyclicals still in play even as market participants may also be eyeing defensive sectors.

Today, investors and traders are likely looking to a slate of Fed speakers to try to gain some clarity on the central bank’s thinking. Additionally, Federal Reserve Bank of St. Louis President James Bullard posted a note explaining his dissent in the Fed’s recent decision to cut its key rate by 25 basis points. Bullard had wanted a 50-basis-point cut, citing expected slowing U.S. economic growth, trade policy uncertainty, rising recession probability estimates, and a U.S. manufacturing sector that “already appears in recession.”

Next week could offer the market further direction on the economy as investors and traders are scheduled to see data releases on consumer confidence and sentiment, new home sales, personal spending, and durable goods orders, as well as the government’s third estimate of gross domestic product.

A Firming Foundation: It’s been a pretty good week for housing market data. Yesterday, figures on existing home sales for August came in at a seasonally adjusted annual rate of 5.49 million. That was up from 5.42 million in July and beat a Briefing.com consensus of 5.36 million. That came after figures showing August housing starts and building permits came in above expectations. Briefing.com pointed out that lower mortgage rates were behind the strength in existing home sales. “The August sales strength cut the inventory of homes for sale,” Briefing.com said. “That will keep upward pressure on home prices, which in turn is likely going to necessitate the need for mortgage rates to stay down to drive ongoing sales growth.”

Will King Consumer’s Crown Stay Shiny? With the health of the U.S. consumer one of the top issues on the minds of investors and traders along with the trade war and Brexit, market participants are likely to be eyeing next week’s reports on consumer confidence and consumer sentiment with some interest. From the data we’ve been seeing, the U.S. consumer has been helping the economy continue to power along. GDP isn’t going gangbusters, but it’s still pretty solid, and the consumer has a lot to do with that. This could be a comforting sign to investors even as the trade war continues to drag on. If prices at the retail level move up due to tariffs and other cost pressures, consumer resilience could help cushion the U.S. economy.

Global Economic Outlook Darkens: While the U.S. consumer has been one of the backstops to the domestic economy, worries about the global economy in the face of the continued trade war are ratcheting up. The OECD is projecting that the global economy will expand by 2.9% this year and 3% next year, which would be the weakest annual growth rates since the financial crisis. And downside risks continue to mount, the group said Thursday. “Escalating trade conflicts are taking an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets, and endangering already weak growth prospects worldwide,” the OECD said.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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I am Chief Market Strategist for TD Ameritrade and began my career as a Chicago Board Options Exchange market maker, trading primarily in the S&P 100 and S&P 500 pits. I’ve also worked for ING Bank, Blue Capital and was Managing Director of Option Trading for Van Der Moolen, USA. In 2006, I joined the thinkorswim Group, which was eventually acquired by TD Ameritrade. I am a 30-year trading veteran and a regular CNBC guest, as well as a member of the Board of Directors at NYSE ARCA and a member of the Arbitration Committee at the CBOE. My licenses include the 3, 4, 7, 24 and 66.

Source: Stock Market Looking Up Amid Some Trade-Related Optimism

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It was a big week for the bulls as optimism for a new trade deal gained steam. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Brian Kelly, Dan Nathan and Guy Adami.

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