A FORMULA FOR CORPORATE BUY-OUTS

CORPORATE BUY-OUTS

The Austin, TX private equity firm, Vista Equity Partners, and its founder/owner, Robert Smith, think they’ve found the magic elixir for predicting success in firms that are to be acquired in corporate buy-outs, or, what the field calls, “acquisitions.”  Vista has amassed 110 acronyms that serve as directives in buy-out situations.  These, the firm calls “Vista Best Practices (VBPs).”

Target companies for acquisition must have “critical factors for success (CFS)” and the VBPs represent those critical factors.  Employees of acquired firms and candidates for hiring must also submit to personality tests whose purpose is to determine which employees are best suited to which jobs.  According to the VBPs and CFSs, it’s as simple as saying things like “sales people are better off being extroverted.”  Gosh, there’s a novel observation! And, software developers are more introverted.  Well, grouping everyone into two categories seems a bit simplistic.  What happens with those who can be introverted at times, and extroverted at others?  At any rate, moving on with the analysis of this work:  A Vista proprietary cognitive assessment of employees and potential employees contains questions on logic, pattern recognition, vocabulary, sentence completion, and math.  For its part, though, the Vista folks strongly believe in their assessment process and only hire their own employees from the group of young people applying who have modest credentials and experience and who did well on the assessment series.  The company’s overall goal is to transform business software companies into “profit machines.”  Vista has done more than 300 acquisition deals and tells its investors that it has never lost money on a buyout deal. – which is notable in an industry known for its hits and misses.  When Vista began, 18 years ago, investors were wary of software businesses taking on debt, because they had few hard assets.  Vista and Robert Smith convinced them differently, over time.  Before Vista buys a company, it evaluates whether its software is “mission critical” and whether it has control over its CFSes – Critical Factors for Success.  It it finds that the company comes out well on both indices, Vista often makes an offer that is considered “high,” but that the company is confident can boosted in profitability through concentrated work in its arena of “best practices.”  Members of Vista’s VCG (Vista Consulting Group) set to work revamping everything from the company’s contracts (building in automatic price increases and renewals), to overhauling the sales process (encouraging cross-selling).  Each area of their focus is meticulous – for example, the VCG will provide a commission template to the company, built specifically for their processes, with tabs in the spreadsheets and formulas included.  Cost-cutting is also part of the process: if a company that Vista has purchased is located in a high-cost area such as Southern California or New York, the company will relocate all or part of the business to less expensive areas such as Dallas.  Robert Smith has summed up Vista’s success as one of “a very simple methodology of critical factors for success being under our control – we underwrite to things we know we can change, have changed and have been successful at changing.”

 

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