I find it mildly amusing as to how unaware, naive (or perhaps delusional?) most people at this company are. I suppose that is to be expected given the large millennial and sales/technical profiles of the employees (vs. Finance).
The reality is that software focused Private Equity firms have an EXTREMELY well known and well established playbook that’s been finely tuned over decades of experience and thousands of deals. There is no ambiguity around it. Look at companies like Qlik, Cloudera, Talend in the data world that have gone down this path. More specifically, look at the underperforming public companies in Clearlake and Insight's portfolio that they have taken private (Kofax, Precisely, Cornerstone, Quest, Pluralsight, Veaam). Not a single one of them is a high growth or relevant software company in their industry. Not one.
Let me help educate people on some facts. Here is the super simple investor business equation for those that may not know:
Investors in public software companies == Care about growth above all else. Profitability is a distant second (just look at valuations relative to growth rates)
Investors in private software companies (especially those loaded with debt when taken private) == Care about operating profits above all else. Nothing else comes remotely close. Private equity’s basic model is to take struggling software companies that have tapped out their growth potential and basically convert their high gross margins into massive cash flow streams for investors by eliminating most operating expenses (that tend to comprise 85-90% of revenue for most companies).
Not a SINGLE struggling public company taken private by Clearlake or Insight has grown at a double digit growth rate since being taken private. NOT ONE. None of them have created wealth for average employees either since average employees don't get equity in these PE companies. You know what they all have in common though? They all operate at 35%+ profit margins (some even above 45%).
You know what Alteryx’s profit margin was last year? Around 10% according to the annual report
Just servicing the debt being put on Alteryx in this buyout per the recent SEC disclosures will require more than 2.5x the roughly 10% profit generated by the company last year to service on an ANNUAL basis. Think about that. And that just gets you to breakeven cash. Getting to 30-40% profit margin will require getting rid of at least 500 people and most non-people investments. I don’t know how close they are to finding a CEO (I suppose not very as they just let Kevin go and clearly aren’t planning to promote Paula or Suresh) but they don’t like to mess around once they control the company so expect them to go into immediate cost reduction mode. The rough numbers based on the operating financials of peers suggest at least 500-600 heads being cut but it could be higher if their models are more aggressive. If you look at the approach they took at the companies above after taking them private, new leaders were brought in after the old ones were made to do the organizational gutting. Just ask anyone who worked at those companies at the time several of whom now work at alteryx.
Bottom line: Alteryx’s high growth days are a distant memory henceforth. So are any attempts to truly innovate. You have your former CEO and C-suite execs to blame for this colossal fu$k up and this outcome that will result in a complete change of culture and significant chunk of employees being eliminated.
No I’m not fear mongering here. The objective here is to educate people and give them a reality check so they can get their head out of the sand and plan accordingly. PE has one goal and one goal only: milk their investments for cash and then flip them to another firm eventually or merge them with a peer to reduce costs even further. Everything is a number on a spreadsheet in service of that objective. In fact I’d be willing to place a huge anonymous bitcoin wager with anyone on this outcome