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A consortium led by Blackstone has agreed to take control of troubled software group Medallia from Thoma Bravo, in a deal that will cement one of the largest wipeouts in the history of the $4tn private equity industry.
Thoma Bravo will lose all of the $5bn it invested in Medallia when it took the group private in 2021, under the terms of the deal announced on Wednesday. The Blackstone-led group, which includes Apollo and KKR, will take control of Medallia and inject $150mn to help cut its debt load.
Thoma Bravo’s loss is the second largest in the private equity industry’s history, exceeded only by the collapse of Texas utility TXU, according to Daniel Rasmussen, an expert on private equity at Verdad Advisers.
Medallia’s troubles had also been a concern for Blackstone, Apollo and KKR, which lent heavily to the group.
The deal comes amid mounting fears over the performance of private equity software takeovers struck in the early 2020s, when valuations were soaring during the pandemic. Firms such as Thoma, a specialist investment group focused on technology investments, ploughed hundreds of billions of dollars into software companies at valuations many investors now believe were too high and have proven hard to exit.
Private credit companies had also rushed to finance software groups backed by private equity, something that has caused deep angst among investors and helped prompt a rush of redemptions from many funds.
The rise of artificial intelligence tools including Anthropic’s Claude Code has created further complications for many deals from that era as investors worry that the business models of many software groups will be upended by the technology
Orlando Bravo, co-founder of Thoma Bravo, which manages more than $180bn in assets, has admitted publicly that the firm overpaid for Medallia, which sells chatbots to automate customer service queries.
“You always learn from mistakes. It was a big mistake,” said Bravo at the Sohn Conference last month, when asked about Medallia. “That was one of our 2021 deals. We were moving really fast during that time . . . We underwrote really fast growth, and in hindsight we paid too much because that growth didn’t materialise.”
Thoma’s $6.4bn takeover of Medalla, which was financed with mostly investor cash and nearly $2bn in debt, quickly ran into problems as the Federal Reserve’s rate rises in 2022 caused the interest expense on its debt to balloon.
A retrenchment on software spending in the technology sector followed, while Medallia was beset by heavy management turnover and it faced competitive pressures from rival Qualtrics, which was acquired by private equity group Silver Lake in 2023.
The debt on Medallia’s balance sheet rose by more than $1bn after Thoma’s takeover, as the company made acquisitions and resorted to additional borrowing to meet interest payments. Over the past year, lenders including Blackstone and Apollo have asked Thoma to inject more than $500mn in new cash to Medallia to cut its debt load, but Thoma refused, deciding instead to record the largest loss in the firm’s 20-year history.
Lenders believe the new deal will stabilise Medallia by cutting its debt load to more manageable levels and believe Medallia’s business is performing adequately. Lenders have cut their valuation on their Medallia loans to about 60 or 70 cents on the dollar.
“Medallia is a profitable business with a strong track record serving many of the largest companies in the world,” said Brad Marshall, head of private credit at Blackstone. “We’re confident in the business under this new capital structure and look forward to supporting its plans to invest in this next phase of innovation and growth,” he added in the press release.
Additional reporting by Amelia Pollard in New York
