Thoma Bravo's Renegotiated Deal Has U.S. Investors Wondering Who's Next

Investors who speculate on whether mergers and acquisitions will be completed as agreed are betting against the shares of some companies that have inked leveraged buyouts in the wake of private equity firm Thoma Bravo renegotiating a deal.

The buyout firm convinced software firm Anaplan Inc to agree to a reduction to the $10.7 billion purchase price by about $300 million, the companies said on Monday.

Thoma Bravo argued that Anaplan breached a condition for their deal to be completed, and while the latter disagreed, it negotiated a 3.4% cut to the deal price to avoid lengthy litigation over the dispute, the companies said.

The renegotiation of that deal has coincided with the Nasdaq Composite Index dropping more than 24% since the start of the year, amid concerns about soaring inflation and a looming economic slowdown. This has fueled speculation among investors that some private equity firms may be getting buyer's remorse and are also looking to renegotiate their deals lower.

"This opens up a little bit of a Pandora's box because we don't know if it's just kind of a one-off thing, or is it the beginning of buyers that signed deals at the beginning of the year all of a sudden looking for recuts," said Chris Pultz, portfolio manager of merger arbitrage at Kellner Capital.

Shares of SailPoint Technologies Holdings Inc dropped 3% on Monday on investor fears that Thoma Bravo will seek to renegotiate its $6.9 billion deal to buy the identity security company.

Sources close to Thoma Bravo said Anaplan'a price cut was case-specific and the buyout firm had no current plans to push for a renegotiation of the SailPoint deal or other agreed transactions.

SailPoint did not immediately respond to requests for comment. Thoma Bravo declined to comment.

Shares of software company Citrix Systems Inc fell 2% on Monday on concerns that its $16.5 billion sale to Vista Equity Partners and Elliott Investment Management LP will be renegotiated.

Shares of auto parts maker Tenneco Inc dropped 4% on Monday on doubts over the company's $7.1 billion sale to Apollo Global Management Inc.

Citrix and Tenneco did not immediately respond to requests for comment.

To be sure, investors are still assigning odds higher than 50% that these leveraged buyouts will be completed, based on how the shares of the target companies are trading. But investors say the new uncertainty surrounding these deals underscores how the stock market volatility is pushing them to reassess whether they have priced in the worst-case scenario. "You could argue that the probability of these deals closing hasn't really changed. But the standalone downside has changed. And that has contributed to spreads widening," portfolio manager Roy Behren, co-president at Westchester Capital Management, said.