In 2021, private equity firm Thoma Bravo paid $6.4 billion for software maker Medallia. This week it handed the keys to its lenders and walked away.
That's how fast a debt deal can flip a company to new owners. And it can happen without a single day in court.
A group of lenders is taking control of Medallia. It's led by Blackstone, Apollo, and FS KKR Capital.
The deal is called a recapitalization. In plain terms, that reshuffles who owns a company's debt and stock.
The new owners are adding $150 million in fresh cash. They're also cutting the company's debt by a lot.
Thoma Bravo chose not to put in another dollar. It had already admitted it overpaid and overestimated growth.
So the lenders stepped in instead. Blackstone takes the lead role, since it holds the most debt of the group.
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Medallia makes customer-experience software. Big companies use it to track what shoppers and workers think.
The business still turns a profit. Its problem was debt, not demand.
The company went public in 2019. Thoma Bravo took it private just two years later.
Back then, the price looked like a smart bet.
This is a private credit deal. That means the loans came from investment firms, not banks.
That market has grown into the trillions in recent years. Deals like this show its risk.
When a company can't pay its loans, the lenders can end up owning it. It's like a bank taking back a house.
The catch? Now the bank has to live there and fix the pipes.
That's the gamble these lenders just took.
Blackstone says it's ready for that. "Medallia is a profitable business with a strong track record serving many of the largest companies in the world," said Brad Marshall, the firm's global head of private credit strategies.
The takeover surprised almost no one close to it. Lenders had been marking down their Medallia loans for several quarters.
Those same lenders first backed the Thoma Bravo buyout. They put up a $1.8 billion loan, which they're now turning into ownership.
For Thoma Bravo, it's a costly miss. The firm walks away from one of its biggest bets.
Few funds lose money on a deal this big.
The new owners have a plan for the cash. They'll spend the freed-up money, plus a $500 million pledge, on an AI overhaul of the software.
The lenders never set out to run a software company. Now they have to make it work.
The next year will test that plan.
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