Vista Equity Laying Groundwork to Move Three San Diego Companies
Vista Equity Partners, the private equity firm that spent $2.8 billion this year acquiring San Diego’s Active Network, Websense, and Omnitracs, intends to move all three companies to Texas, according to a source in senior management who is familiar with the plans.
The relocation would be completed in 2014, affecting a total of up to 1,700 San Diego-based employees at all three companies.
“The wheels are in motion,” said the source, who would only speak anonymously about Vista Equity’s plans. “They don’t like California because of the tax structure. They like to hire young, aggressive, incredible talent on the cheap, and get them in there to drive up the earnings or cash flow. They basically take out the costs, increase the cash flow, get the debt down, and look for a sale.”
Vista Equity did not respond this week to requests for comment that were left Tuesday by phone and through the firm’s website. Vista Equity is based in San Francisco, and has offices in Chicago and Austin, TX.
In response to a request for comment, Kristin Carroll, marketing vice president for the Active Network, wrote in an e-mail late Wednesday, “As you’re aware, the acquisition by Vista is very recent and we have not finalized any of our 2014 plans.”
Omnitracs CEO John Graham declined to comment in a brief phone call, referring the query to Vista Equity. A spokeswoman for Websense did not immediately respond to a query by phone and e-mail late Wednesday.
The private equity firm specializes in software investments, and currently has about $7.7 billion invested in a portfolio that includes Atlanta-based Aderant (law practice management software), Austin, TX-based Accruent (commercial property management software), and Carrollton, GA-based Greenway Medical Technologies (IT systems for physician practices).
The first of Vista Equity’s three San Diego acquisitions this year was Websense. The $1 billion deal that was announced on May 20 and closed on June 25. The network security firm was founded in 1994 with software that enabled corporations and other customers to prevent their employees from visiting non-business-related websites. The company went public in 2000, and expanded its offerings to include a variety of technologies that protect organizations from cyber attacks, data theft, and other types of Internet security breaches. At the end of 2012, Websense had more than 1,600 employees around the world, according to its annual report, including more than 500 in San Diego.
Vista Equity’s $800 million purchase of Qualcomm’s Omnitracs division was announced on August 23, and was completed three months later. Qualcomm (NASDAQ: QCOM) introduced the satellite-based fleet management system for long-haul trucking companies in the late 1980s, and generated enough cash from the two-way communications and tracking system to sustain Qualcomm’s development of its core wireless CDMA technology. In conjunction with the deal, Vista Equity said it also was acquiring Baltimore, MD-based Roadnet Technologies for an undisclosed price, and planned to combine Roadnet’s private fleet management software with Omnitracs. The Vista Equity buyout included Omnitracs operations throughout the United States, Canada, and South America, but the number of employees was not disclosed. Qualcomm did not disclose how many employees worked in its Omnitracs division. One estimate has the headcount at about 475 in San Diego.
Vista’s $1 billion buyout of the Active Network closed on Nov. 15, less than two months after it was announced. The Active Network, founded in 1999, provides Web-based online registration services for more than 55,000 global customers, including marathons, recreational sports leagues, campsite reservations, hunting and fishing licenses, and company conferences, meetings, and retreats. The company went public in 2011. At the end of 2012, the Active Network had more than 3,000 employees around the world, according to its annual report, including more than 700 at its San Diego headquarters.
So far, there is no external indication of Vista Equity’s plans. All three San Diego companies continue to list San Diego job openings on their respective websites, and commercial real estate executives said they were unaware that Vista Equity was laying the groundwork for a move.
“I really hope that it’s not true, because it really would be a shame for those core software capabilities to leave San Diego,” said Jeb Spencer of TVC Capital, a San Diego private equity firm that specializes in software deals.
Nevertheless, such a move makes sense, Spencer said.
“The resources here are beyond expensive,” Spencer said. “We know the tax structure [in California] is unfavorable to business and individuals, and I imagine their margins would improve 10 percent by making the move.” In Texas, Spencer added, “The rent is less, taxes are less, and I’ll bet salaries would be 30 percent less expensive there.” (Texas has no individual or corporate income tax; corporate income tax rates in California vary from 1.5 percent to 10.84 percent, depending on the type of corporation.)
“I don’t want to say anything about Texas,” Lunsford added. “It is a great market, and it does have a great tax structure. But I’m not sure it makes that much difference when you have a high-tech, high-growth startup, because they’re not making money anyway.”
David Marino, executive vice president of the San Diego commercial real estate company Hughes Marino, said the departure of three well-established software companies would be “unfortunate, but it wouldn’t be catastrophic” for the commercial real estate market here.
“I have been hearing a lot of concern from employers these days about the difficulty in hiring smart, hard-working people,” Marino said. “We’ve got a number of companies that are looking to hire 100 or more people next year, and they’re kind of scratching their heads in terms of where they’re going to find them. This would certainly put a lot of those high-quality employees back on the market.”
Spencer also noted the departure of three of San Diego’s biggest software companies could have a huge impact on the ecosystem for software startups in San Diego. That would depend, though, on the number of senior engineers and executives who decide they would rather stay in San Diego than move to Texas.