A U.S. private equity firm led by key figure in a historic U.S. tax evasion case has invested $300-million in Toronto financial planning and analysis software firm Vena Solutions Inc.
Vista Equity Partners is taking a minority stake in a deal valuing 10-year-old Vena at more than US$600-million. It’s the second sizeable transaction this year for a Canadian maker of software used by finance departments, after HG Capital LLP bought control of Prophix Software, valuing the Mississauga enterprise at US$500-million-plus.
Vista is one of the largest, most active and successful private equity firms in the U.S. It manages US$75-billion in assets and specializes in buying software companies serving enterprise customers. Vista founder and CEO Robert Smith is the richest Black man in the U.S. and celebrated as one of the nation’s top philanthropists. He’s the first Black chairman of Carnegie Hall and in 2019 pledged to pay off student loans for the graduating class of Morehouse College in Atlanta. Cornell University’s chemical and biomolecular engineering school is named after him.
But Mr. Smith has also emerged as a central figure in a tax case that has recast his reputation, revealing the truth about Vista’s origins. Last October, he entered into a non-prosecution agreement with the U.S. Department of Justice in return for admitting to 15 years of tax evasion and agreeing to pay US$139-million in back taxes, interest and fines and foregoing deductions on US$182-million of charity donations. He agreed to co-operate with an investigation into Vista’s first backer, fellow Texas billionaire Robert Brockman. A U.S attorney said Mr. Smith “committed serious crimes” but his co-operation “has put him on a path away from indictment.”
Mr. Smith, a former investment banker, admitted Mr. Brockman staked Vista its original US$1-billion in 2000 on condition that he hide fund income generated for Mr. Brockman’s benefit from the U.S. Internal Revenue Service through offshore structures. Mr. Smith used untaxed earnings to pay for his own properties in Sonoma and Switzerland. He tried to come clean to the IRS under an amnesty program for holders of unreported offshore assets in 2014 but the service rejected him; he subsequently filed falsified tax and asset account documents.
Prosecutors claim Mr. Brockman concealed $2-billion of gains; his lawyers maintain his innocence and argue charges should be dropped because he suffers from dementia. None of the charges have been tested in court.
Mr. Smith told Vista investors the case was 20 years old and dismissed it as a personal tax matter that didn’t affect Vista. Most investors appear to have stuck by Vista due to its long track record of delivering above-average returns, the New York Times recently reported. At a DealBook conference last November, Mr. Smith, who is still CEO, said “I’m moving forward. I made right with the government.”
Vista has seen high-profile departures since Mr. Smith’s admission, including co-founder and president Brian Sheth and co-leads on two Vista funds including the one that backed Vena.
Despite Mr. Smith’s travails, Vista was on a short list of companies Vena pursued late last year when it began looking for fresh funding. “From my perspective the matter tied to Robert Smith was a personal taxation issue…and is hopefully behind [him] and he can keep doing wonderful work as a philanthropist and investor,” Vena CEO Hunter Madeley said in an interview.
Vena, which generates more than $50-million in annual revenues selling subscription software to 900-plus “mid-market” corporate customers with up to $2-billion in revenues, was closing out another year of 30-per-cent-plus growth after initial pandemic-related slowdown fears didn’t materialize, said Mr. Madeley, who joined in 2019 after serving as chief sales officer with HubSpot Inc.
“We started talking to friendly (firms] that have always followed us,” sharing Vena’s plans to grow revenue to US$200-million by 2025, he said. “Given the market was hot and given our state through COVID, we started assessing whether or not it made a bit more sense to have growth fuel to throw on the fire.”
After receiving 13 expressions of interest, Vena signed non-disclosure agreements with nine and narrowed the prospects to three bidders “we thought we were well aligned with,” Mr. Madeley said. “Vista was the right choice at the right time.” He praised Vista for its “significant track record” of creating value over hundreds of investments and “high quality, super effective and highly collaborative” staff. “We feel we’ve got a great partner going forward…I have truly no concerns.” About $100-million will go to Vena; the rest will be used to buy shares from earlier investors, including some from past U.S. private equity backers JMI Equity and Centana Growth.
Vena co-founder, shareholder and ex-CEO Don Mal said “I look at Vista as a strong brand with a proven playbook for successful tech investments that drive significant shareholder value” including helping with acquisitions.
Vista did not respond to questions from the Globe and Mail but in a statement about the funding, managing director Kim Eaton, said: “The pandemic has emphasized the need for agile financial planning processes...and Vena is uniquely positioned to help.” Ms. Eaton, who is joining the board, added, “We look forward to partnering with the Vena team in its next stage of growth” as Vena expands to new customers and markets.
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