You Don't Want To Be Quest Software
Quest Software is reportedly on the block and carries a Debt-to-EBITDA ratio of approximately 15x. No amount of debt was too much for PE firms when Fed Funds was at 0-1%. Try selling a 15x levered Software company with Fed Funds at 5.25-5.50%. Good luck. I can only imagine the number of mid-sized Software companies that were acquired by PE firms in 2012-2022 that have been levered up to the point where the companies can’t afford to hire people, invest in Product, or ramp Sales & Marketing.
The PE playbook in these heavily leveraged Software scenarios is to cut heads, hope that there is a buyer, and wait for the Fed to take rates down. There is an entire cohort of walking dead companies such as Quest Software that are undersized and over-leveraged.