Musk’s Takeover of Twitter Reminds Me of PE Tech M&A in 2003
With Some Important Twists
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Elon Musk’s $44 Billion takeover of Twitter will be another radical shift for the software industry. In many way what has transpired in the past week reminds me of Private Equity Tech M&A in the early 2000s. There are some very important differences however. Will the X super app be the long-term savior of Twitter and another huge notch in Elon’s belt?
In this article we will discuss:
- Private Equity Tech M&A In 2003
- In 2022, Twitter was Struggling, but Not Distressed
- Musk’s Deal and the Challenges He Faces
- Musk’s Potential 7-Step Plan
- 1. There’s a New Sheriff in Town
- 2. Decapitate the Old Culture
- 3. Send in the Shock Troops
- 4. Challenge Sacred Cows
- 5. Experiment with New Revenue Streams
- 6. Restructure Operating Expenses
- 7. Eliminate Stock Buybacks
Private Equity Tech M&A In 2003
After the DotCom Crash of 2000, private equity stepped into the tech M&A game in a big way. PE firms would find underperforming assets, acquire them with a combination of debt & equity, restructure the, then sell them for a profit a few years later. The debt service requirements often required that the acquired company had to quickly reduce operating expenses and meet draconian EBITDA and cash flow targets. The restructurings were often harsh with over 25% to 40% of the employees being laid off. For most software companies, employee labor costs make up a significant portion of their operating expenses. The only way to quickly improve profitability is to dramatically reduce headcount.
In 2003 I joined Inovis, the former Supply Chain Execution business Unit of Peregrine Systems. It was divested in 2002 to Golden Gate Capital for $35 million. At Peregrine, it had been doing about $85 million a year. Peregrine had been in trouble and needed to raise cash fast, Golden Gate accommodated them. A large part of the consideration paid was debt. Within six months of closing 25% of the headcount was eliminated and…
