Exostar: The Explore Platform's First Investment

Speaker A: One of the things that I tell people when they say, hey, how was TB to work with? To some degree, for me, it broke the stereotypes around what's it like to work with private equity, and not just any private equity, but someone at the pedigree of Thoma Bravo and, um, what people perceive an organization like Thoma Bravo demands from their portfolio.

Speaker B: Welcome to Thoma Bravo's behind the Deal. I'm, um, Orlando Bravo, founder and managing partner at Thoma Bravo. Today we're telling the story of the first investment from our Explore platform in 2020. After years of work, we purchased Exostar, a software supply chain network built specifically for the aerospace and defense industry. Thoma Bravo partner Carl Press and principal Adam Konalski walk through the deal and reflect on why persistence is often the key to success. They first began meeting Exostar in 2017 and patiently but relentlessly pursued the opportunity through closing in July 2020. From there, we helped the company grow and innovate. By the time we exited the business in November 2023 through a sale to Arlington Capital, revenue had grown from 60 million to over 80 million, and EBITDA had improved from negative 4 million to over 20 million. Exostar CEO Richard Addy also joins the conversation to share his perspective on the deal and reflect on what it was like to partner with Thoma Bravo during an important phase of the company's growth.

Speaker C: Adam, good to see you. In case we don't already spend enough time together, I figured we should record a podcast episode.

Speaker D: It's our first podcast.

Speaker C: Yeah. This is exciting. Um, so for, uh, the listeners and viewers out there, I'm Carl Press. I'm a partner at Thoma Bravo. I've been with the firm for 11 years.

Speaker D: And I'm Adam Konalski. I'm a principal. Uh, been with the firm for almost 10 years.

Speaker C: I've been looking forward to doing this one for a while. We're going to talk about the very first investment that we made in our Explore platform at Thoma Bravo in a company called Exostar. Uh, a company that will forever be near and dear to both of us. Uh, maybe for the listeners, really quick, Adam, walk folks through the business, what Exostar does, who are its customers.

Speaker D: Yeah, no problem. So I think to understand Exostar, you have to understand the problem that it was built to solve. Um, so if you think about the OEM primes within the aerospace and defense community, so think your Lockheed's, your Boeings, your Raytheons, they have very complex supply chains. They have thousands of Suppliers and all of the interactions between those primes and their suppliers are highly sensitive. So we're talking about controlled, unclassified information, Cui, we're talking about export controlled data, we're talking about classified programs that these, um, primes and suppliers are interacting on. Um, and so in order for these suppliers to do business with these primes, they have to go through a very burdensome, highly regulated certification process. And so if you multiply that problem of number of OEMs and number of suppliers and all those relationships within the defense industrial base, that you can see how large scale of a problem this was, how redundant and expensive it was that all these suppliers had to get certified, uh, with all the different OEMs. And so Exostar was founded as a joint venture by these OEMs, uh, Boeing, Raytheon, Lockheed, et cetera, to solve this problem. And so the idea was to build a shared network, uh, between the OEMs and their suppliers, such that a supplier can just get certified once, have one compliance posture, and then be able to do business with anyone within that, within that network. And so just like Visa, you know, sits between banks and merchants and acts as that trust layer in order for transactions to happen. Exostar is the visa of the defense industrial base, acting as that trust layer so that primes can securely collaborate and procure from their suppliers.

Speaker C: Uh, I love that analogy. Anytime you're the Visa of anything, it's usually a good thing.

Speaker D: It's usually a good thing. And so Exostar, effectively, when we were taking a look at it, was the de facto supply chain platform for procurement within aerospace and defense. I think one of my most favorite stats that I came across when we were doing original diligence was that nearly two thirds of, uh, U.S. defense spending flowed through the XSR network. So it was very clear early on how special, how special this company was. So it was very obvious that we had to find a way to buy it.

Speaker C: Yeah, you've done an excellent job motivating, uh, the opportunity. It was such a special business when we first learned about it. But I want to take a trip down memory lane. Let's do it. As to how we actually landed on this deal, and this is why I was so excited about this particular episode of behind the Deal, because not only is this an investment that we've made and now exited, so we have the full scope of the deal to talk about, which is exciting and unusual, but also just the unique nature of how we came about investing in this business, how we found it and how it ties into everything else that we've done at ah, Thoma Bravo, I think is so fascinating. So in 2014, our managing partner, Seth Boro, led an investment in a company called co Global Healthcare Exchange ghx, which is quite literally the identical replica of what you just described, but for the healthcare industry, for medical supplies and healthcare equipment. It was founded as a joint venture. We acquired that joint venture, we transformed that business in a lot of different ways. In 2017 we were able to get a partial exit and then ultimately a few years later had a complete exit in 2016. Now fast forwarding three years, I joined the firm in 2015. 2016 is when you joined Adam, and it was right around when we had first launched our Discover platform. So our Discover platform was in its early days and we came across an opportunity to invest in a company called Alemica, which is the identical replica of what you just described for Exostar and what I just described for GHX in the chemicals and process industries. So again, a joint venture that was formed by its customers, in this case businesses like basf, Dow, Dupont, uh, Michelin and so forth, uh, to facilitate their commerce. All of these businesses had sort of started in the era of around 2000, at the dawn of the Internet, when these consortiums formed to say, hey, we've got a common set of suppliers. Why don't we leverage a common infrastructure to communicate with them securely and we'll fund that and we'll grow that as a, uh, joint venture and it'll really be a service provider to all of us in the industry. And so we invested in the one in healthcare, we invested in the one in the chemicals and process industries, which was Alemica. We ended up selling Alemica in 2019. But when we made the investment in 2016, a few of us said, well, gosh, are there more of these out there to do? Are there still more of these joint ventures formed in and around the uh, dawn of the dot com era that still exist, that are independent, that have all the characteristics of what you just described, and if there are, where can we find them? And sure enough, that's what led us to Exostar in the aerospace and defense industry. There were very few remaining. This was the one that really stood out to us as another, ah, as the next in a lineage of deals that we could do. And not only did it pattern recognize to what we did on GHX and Alemica in that it was a joint venture, but it also, very specifically its core mission was identity, access, management for all of these suppliers that do business with the defense industrial based Primes. So the businesses like Boeing, Lockheed, Raytheon that connect to 100/000 suppliers all over the country, they needed a common supply chain platform and then they needed a common identity access platform to be able to securely authenticate those suppliers and to do that once across the network. It just so happens identity is another very big theme for Thoma. Bravo. We are the largest investor in identity security companies and there's a whole long list of businesses that we've invested in over the years. From Sailpoint, which we've now invested in twice. Ping and Provada, uh, Bomgar, Centrify, Idaptive. We were prolific in the identity space. We knew that category so incredibly well. And so here was the confluence of two themes that had emerged over the course of many years at our firm, all in one opportunity. We absolutely knew we needed to buy it. And so began the journey in late 2016 to find a way to buy Exostar. And now the business was not for sale. Unlike GHX and Alemica, where there was a catalyst, uh, to sell the business, there was consensus around an exit amongst the joint venture stakeholders that didn't exist for Exostar initially. And therein lies a three and a half year journey to actually go and get this thing done. We first met with Richard, the CEO in January of 2017. Now this was still while I was a member of the Discover Fund team. I was working alongside AJ Rohde, my partner, and George Jaber, uh, who continue to, both of them continue to lead that Discover effort. And we flew out to dc, we met with the CEO Richard, and we probably then subsequently flew out another three or four times, if not more over the next three years. We had many, many discussions with Richard over the phone. We started to slowly get access to some information and data on the company. We presented to the board of the business as to why this might be a good idea to sell Tatoma. Bravo. Of course we were met with a ton of skepticism. Why would we ever sell our platform? This is a service provider for the Primes. We don't, you know, to be totally honest, any purchase price that you present to us divided by six massive mega companies doesn't really amount to much, uh, for each of us and doesn't really move the needle. But having a trusted, reliable service provider in Exostar to do what we needed to do with was critical. And so our message wasn't necessarily resonating or at least not initially, but we were persistent and we were dogged in our effort to try and convince that board to get the deal done. Richard, to his credit, very quickly saw the merits in doing this and what it could mean for not only Exostar and the journey of the business, but also what it could mean for the customers and the innovation that we could introduce into the business. And so to his credit, and I'll always give him credit for this, he was an early supporter of this idea and without his leadership, of course, this never would have gotten done. Um, but he really kind of kept the idea going for years and we would have these periodic check ins and really, uh, got to know him throughout that process and got to develop conviction in him as a leader. So then we Fast forward to 2019. We're just about to launch the Explore platform. So now this is our third investment platform at Thoma Bravo behind Flagship and then Discover. I, uh, was asked to lead that effort. Adam was the very first member of that team, along with Sam Ewells, started much like we did in Discover, with a group of three folks from inside our business to help shepherd a new platform forward. And I remember, Adam, you probably remember that meeting. We sat down for the very first time, the three of us, to go through our pipeline. And one of the first names that I referenced was, of course, Exostar, because it had been a name we'd been tracking for so long. In the time that we were tracking Exostar, Discover had grown. And so actually the Exostar deal was now a perfect size for our newly formed Explore platform. And so it was lining up well. All we needed to do now was again find a way to convince the board to actually do the deal and sell us the business. Yeah. So, Adam, you start working on it with me in 2019. We get some data, some more data from the company, we start to really make some traction with Richard. Finally we have some momentum. And then I very distinctly remember a meeting that I'm sure you remember all too well.

Speaker D: All too well.

Speaker C: It was late 2019. We had finally convinced the board to do another big meeting. And the topic was to discuss our stewardship of Exostar. What were we going to do with the business and why was this joint venture comprised of all these different members from all these large defense industrial based companies? Why were they going to be better off selling to us versus holding it? Remember that meeting was in the basement of, uh, a Hilton hotel just outside of dulles Airport near D.C. we had asked Carl Thoma to come join us for that meeting to really bring in some extra Firepower. And Carl was just incredible. Immediately when we called him, he was excited about the opportunity, dropped everything in his schedule to come out and join us, was super prepared for the meeting and really helped us in that session. Adam, what do you remember from that particular meeting? Because there's so many little vignettes we put on there.

Speaker D: Well, it was my first time getting to meet most of the management team in person. So I had spent the months prior buyer, uh, digging into the data and frankly on first blush I wasn't as familiar with the company as you were at the time. When we first received, uh, the data on Exostar, from my perspective, you really had to squint to see the value in the business because it was, call it 60 million of top line that was not growing all that much growing, call it 3 to 5% per year. It was consistently losing money. It had 30 different products that it was selling and it was effectively acting like a, uh, shared services center on behalf of these primes. Um, and so this was my first opportunity to meet the management team in person, hear the story firsthand, uh, and hear from the board as well what they expected, um, in terms of stewardship from the next buyer. Um, and it was just very clear coming out of that meeting just how special the business was, how mission critical it was. You know, again, this was the platform that was securing their supply chains. It was the platform they were using to procure from their suppliers. And you know, it was a 20 year old piece of technology that was founded again 20 years ago. And um, they knew that they needed help and they needed to innovate in order to stay with the times and make sure that the platform was modern enough to keep up with the latest threat vectors from a cybersecurity perspective and a compliance perspective. And, and so they really wanted to hear from us firsthand on how we were going to help them achieve that. Um, and I just remember having total imposter syndrome as a, as a 27 year old at the time. I, uh, think the average age of the room was around 70 years old. You know, these were all, uh, former military folks. You know, they've been heads of procurement for, you know, these, these behemoth companies for, for quite some time. And so it was, it was nice to have Karl Toma there with some gray hair to uh, lend us some credibility when we desperately needed it.

Speaker C: Yeah, yeah, I'm not sure we would have convinced that group if not for Carl. So he was incredible. But, uh, coming out of that meeting, we finally had some traction. We had some momentum. The thesis was really pretty simple. It was, we were gonna replicate the success we had on GHX and Alemica here by streamlining the business, by driving up the margins. And we had a really clear sense of how we were gonna do that by focusing the business on a few core products. You know, the company had accumulated all these different small capabilities for each of its different six shareholders because if one of them asked for something, the company would build it. And of course that's not how we run best in class software. We need to build products that all of our customers are going to utilize. And so, you know, uh, getting away from that and really getting to commercial grade enterprise SaaS was going to save the company a lot of time, energy and money. And so that was the core of the thesis. We made a proposal to the business and the company gave us an indication of where we would need to come in on value. And at the time, of course, we never would have admitted this to them. We thought it was an incredible price and we felt like we were sitting on a real winner right from the jump. We present this to the investment committee. Uh, this must have been now in January of 2020. And it was probably one of the quickest investment committee meetings we've ever had. I wish they could all be like the exostar ic. Uh, the valuation was incredible. It was a structure and setup that we knew oh so well. It was in identity and access, which was a category we absolutely loved.

Speaker D: The pattern recognition was off the charts,

Speaker C: was off the charts, was off the charts. And so we had approval. Off we went. The board had a big vote in early February. Uh, we needed four of the six major shareholders to approve the deal in order for it to go forward. And at the time we believed we had exactly four. And then Richard called me on a Thursday and I will never forget this call. And he said, carl, uh, we have three. One of the four votes that we thought we had went away. That group is concerned about stewardship, they're concerned about our posture in cybersecurity. They're just not convinced yet that they are going to be better off selling this joint venture to Thoma Bravo versus just running it independently. And my heart sank. Felt like we lost the deal after months of hard work and years of chasing the opportunity. And we were pretty dejected. Uh, maybe three, four weeks later, we go right into Covid. And so that kind of complicates the whole world. But we never gave up. We didn't give up on the deal. We kind of got Back in the lab, we put a new presentation together around how we were going to be good stewards from a cybersecurity perspective. We brought in some of the cybersecurity experts in our portfolio to present to the board. Now we had another meeting. Of course, this was virtual. Now, this was in April of 2020, so everybody was at home. But we did this large second stewardship meeting virtually in May. They do another vote and we get the four out of the six votes. I remember that call so well, Richard calling me and we had a deal and off we went and ultimately closed it in July of 2020.

Speaker D: Yep, July 6th. Yeah, it was our first deal where we had to re underwrite the deal. We had to put together an investment committee memo, like all remotely. This was a time when Zoom was barely a thing. We were much used to kind of huddling in each other's offices to look at the model, think, uh, about how do we want to re diligence this business. And so it was, uh, uh, thankfully the first of many deals we got to do remotely. But, uh, it was quite the test run. Yeah.

Speaker C: So we closed the investment in July. It's our first investment in the Explore Fund. Uh, we get off to a great start. We execute on the upfront margin plan that we had set forth with Richard. Richard just did an absolutely phenomenal job with that. And when we get him on, we're going to get to unpack the journey we went on with Richard specifically on the operational side, which I think is Super Interesting. Within 13 months of making the investment, we're able to do a dividend recapitalization. Now, at this point, the capital markets are rip roaring, uh, debt is available, the company has hit its numbers, so we're able to do a complete refinancing. Took out all of the equity that we invested in the business within 13 months, which of course, uh, was phenomenal. And now we're playing with, quote unquote, house money, uh, which is a great place to be again. You wish they could all be like that. And we continue on our value creation journey, continuing to drive margin, continuing to, uh, add new customers at a clip that the company hadn't in forever, uh, and innovating on our platform in a real way, which was also really exciting. And then by early 2023, we made the decision that it was time to think about liquidity on the investment. It will have been about three years since we had made the initial investment. So we start preparing for an exit. And by that point we had made a lot of Progress on the business, all purely organically, had not made, uh, an acquisition, but maybe give the listeners a sense, where was the business then relative to where it was when we first.

Speaker D: Yeah, investing. Yeah. So like you said, we made a. Made a lot of progress that we are proud of. Um, uh, the company, in the year that we sold it, was doing about 85 million of revenue and growing in the low teens, which was an acceleration from the growth rate of the low single digits when we first acquired it, doing all the good things that you and I have talked about and that Richard has talked about, um, and was doing nearly 25 million of EBITDA as well, uh, compared to the negative 4 million that was doing when we acquired it. And so in three short years, we were able to take the business from 60 to 85 million in revenue, more than double the growth rate, and then take it from negative 4 million to 25 million of EBITDA. So I think we did enough work where we felt comfortable, you know, it was time to sell.

Speaker C: Yeah, we did a lot of good work on that one. Uh, not without its bumps and challenges and stumbles along the way, but we definitely got there. Ah, we ran a process in the spring of 2023 to sell the business. We had hired an investment banker. We prepared a number of materials. Uh, when we asked for bids, we ended up getting, I think it was 17 indications of interest. Yeah, which was incredible. And the range on those was unreal. The highest end of the highest bid was twice that of the lowest end of the lowest bid. Just to give the listeners a sense for the range, which is unusual. Usually it's, uh, a tighter distribution than that. We weren't exactly sure where this was going to shake out and where in that massive range we were going to end up. We start narrowing the field. Richard and the, and the team, they do, you know, 17 different meetings and go through the entire process. We really put them through the grinder on that one. And then in the end, we had really two final bidders and one in Arlington Capital that really distinguished itself and ultimately was the winner.

Speaker D: Yeah, yeah. And, uh, you know, got to tip your hat to Arlington. They, uh, they're great investors. They were great, uh, great collaborators, uh, on the process with us. Um, it was very clear throughout the process that they knew this ecosystem super well. They had different ideas about what they could do with Exostar, given their connections within the federal government, given their connections, um, within the OEMs and given their portfolio companies which touched the ecosystem. And so while we thought we did A lot to help improve the company operationally and set up the business for success. Set up the business to be a very profitable, growing independent software franchise. We felt confident that Arlington could, um, uh, take it to the next level with their own thesis and own proprietary resources.

Speaker C: Arlington is a specialist in businesses that sell into federal government. This was just so down the fairway for them. In fact, I think the partner who led the transaction, he told me when we first spoke that this is, this one won the award for the most down the fairway of any investment they'd ever made. Uh, when he told me that, I felt pretty good that we might have a deal with them ultimately. Uh, the lead up to the final bid between those two sponsors and the process that led us there was pretty intense. I made a joke coming out of that meeting that so often you see the finance industry dramatized with these really high stakes final negotiations where tempers are high and the pressure's on and the stakes are high. And of course that's a dramatization of what our usual day to day is. That meeting came as close to the dramatic interpretation of our industry as I'd ever experienced at that point.

Speaker D: I was waiting six years for that moment. My entire career.

Speaker C: Exactly. Ah, and finally it arrived. Um, we get through that. Uh, I remember on Sunday night after that intense call, I made a direct call to the partner at Arlington and I asked him point blank, are you going to do this deal? And he said yes. And on Monday morning we signed the deal. So they did exactly what they said they were going to do. They were great partners like you mentioned. And uh, after a three and a half year journey of courting this company and a three year journey with the company, we had a signed deal to do a full exit, which we then consummated in November, just before Thanksgiving and really was the launchpad for the Explore platform.

Speaker D: Totally had all the hallmarks of a classic Thoma Bravo deal. Mission critical vertical market leader, super deep domain expertise within aerospace and defense. Um, those qualities were all reflected in the numbers of the business, the very high gross retention, uh, and then an operational plan with the existing management team to really transform the business again from a money losing cost center to an independent, profitable, growing software franchise. Um, and most importantly, we bought it right. You know, we stayed disciplined on price despite several attempts by the selling shareholders to move us up and that paid dividends for us down the road.

Speaker C: Yeah, the listeners might be wondering, well, gosh, this has worked three times now for you. Why not find a fourth? And our response is we're looking. So if anybody knows of any out there, give us a call because we'd love to talk to you.

Speaker D: Hopefully a shorter sales cycle than, uh, this one. Hopefully less than six years.

Speaker C: Yeah, that'd be nice. Uh, I'm proud of how scrappy we were, uh, and deliberate we were about the sourcing, the value creation, the partnership we had with Richard, the way we got to an exit ultimately with Arlington Capital. The whole thing is, um, a process that I, you know, hopefully we can replicate many, many, many times over, and, you know, it's fun to revisit. So I know with that, why don't we bring in Richard and we can talk a little bit more specifically about the operational journey that we went on and then some of the motivation as to why he pretty early got on board with the message that we were delivering and why it made sense to sell to private equity.

Speaker D: Let's do it.

Speaker C: Yeah.

Speaker B: Next up, Thoma Bravo, partner Carl Press, and principal Adam Konalski. Sit down with Exostar CEO, uh, Richard Addy.

Speaker C: Richard, it is so good to see you.

Speaker A: Carl, it's good to see you. And, Adam, good afternoon.

Speaker C: Good afternoon. This is a pleasure. I was just telling Adam, you know, we so rarely have time in our days, we're so busy to, you know, reminisce and reflect on, you know, past deals and successes we've had or failures we've had and journeys we've gone on together. But this is a special opportunity, so we appreciate you making the time.

Speaker A: Well, I appreciate you inviting me to, um. The Exo Star story is a fantastic one, so I'm. I'm excited to have an opportunity to tell it again.

Speaker C: M. Awesome. Maybe give the listeners and viewers just a quick, uh, intro on you, bio on you, and then we can talk about the journey that we went on together.

Speaker A: Sure. Uh, first of all, my name is Richard Addy. I'm the chief executive officer for Exostar. I've been here approximately long time now. Almost two decades. 19 years. Um, came over from a large aerospace and defense company, Eric Rolls Royce North America, back in 2007, initially as a seconded employee, expected to be here temporarily and go back to rolls Royce. And 19 years later, I'm still here and, uh, excited about it. Um, prior to that, I was with Rolls Royce saic, joint venture, uh, with another aerospace and defense company, ceqa. And then early in my career, I started off in public accounting, uh, downtown in Washington, D.C. so, background? Uh, CPA, uh, with all things. A master's in tax.

Speaker C: That's A perfect segue. You started as a seconded employee from Rolls Royce, which was one of the six original shareholders of Exostar, ultimately became the CFO and then the CEO right there. You know, this is a different kind of story than a typical enterprise software story. You know, seconded individual joint venture. So Fast forward to 2017, I think, is the first time you and I met you. I and my partner, A.J. rody and George Jaber. We met you in Washington D.C. in your office. I so remember that meeting. It was January, it was cold outside. And we presented you this idea that we had sort of traded some emails and maybe phone calls on prior to that meeting, uh, about Thoma Bravo acquiring Exostar. And we presented some case studies of other joint ventures that we had acquired, uh, which maybe resonated with you. We weren't sure, we weren't sure what to expect. So maybe you can tell us, because I never really asked you this question. So I'm excited to, to get your perspective. What were your initial impressions of us and of the idea of doing this transaction and how did you ultimately get comfortable with supporting it?

Speaker A: Yeah, it's an interesting progression because the introduction, I don't know if you remember this. It was a former colleague of mine here at Exostar who's a chief executive before me who joined. He was on the board of one, uh, of the portfolio companies that you referenced than you had experience with. And he actually made the introduction and he and I spoke. And uh, he. That the joint venture who is a party to obviously consortium, owned more, even more participants than Exostar had. And he uh, said, I really think that you should meet these, these gentlemen at Thoma Bravo. They're, they're unique, uh, they're, they're very, uh, progressive and private equity and doing great things. And I think it's worth a discussion with them. And at the time it seemed like the furthest thing from both my background and what I felt, where the shareholders were at and where our journey at Exostar, where we had progressed to. And um, so it was interesting and intriguing, but I will tell you that it was at a very immature level. It's just genuinely an idea. But it was a recommendation from him that really was the catalyst for. Let's take the, the meeting and, and uh, and learn more.

Speaker C: Right. And then we, we subsequently have many, many more meetings, many more discussions. You sort of slowly share with us some information about the business. We're able to get up to speed on the financials. We figure out what we suspected, which Was this was a really, really special business. The recurring revenue was growing really nicely. The renewal rates were fantastic, as we suspected they would be. Just high quality enterprise software business that's deeply ingrained in its customers, businesses and operations. It's the business we always, uh, wish to buy, we drool over. And then when we find it, we just can't get it out of our heads. So we go through that journey. Uh, we get to the initial shareholder vote. You remember this very distinctly, Richard. You called me in February of 2020 and said, oh, we are one vote shy. We thought we had four. We needed four out of six. We got three. Back to the drawing board. We do another big meeting with your board, ultimately get that fourth and final vote that we need. This is now May of 2020. We close the investment in July, and then we're off to the races from there.

Speaker A: Yeah, you make it sound easy.

Speaker D: Maybe one, uh, question, Richard, I have before maybe we jump into, you know, some of the operational, um, endeavors we went, went on together. Um, could you talk a little bit about what it was like managing, you know, the process from your perspective, you know, managing us. Uh, a party that was very keenly interested in your buying your business. You know, we saw the opportunity. I know you saw the opportunity to. And a group of, you know, shareholders who, you know, this was their baby. They wanted to make sure that it landed in the right hands of the right party. Could you talk a little bit about that?

Speaker A: Yeah, sure. So I'll start with maybe the shareholder view as you rightfully outlined. Uh, Adam, some hesitancy and reluctancy. You know, you've got six shareholders that are equal. Six equal shareholders. No. No majority shareholder, no dominant participant. And as you guys know, there's these. This is a. This is a joint venture of equals to some degree. Maybe not in size, um, but certainly an ownership percentage in the way they work together. It was important to them that, that there was unanimity. I would say as close to unanimity as possible. And, uh, it ended up putting. Putting some tension because I think the view from some of the shareholders was, look, we formed this company at that point two decades earlier to do a specific B2B E commerce platform for us. Think of it as like an Uber shared service. It's now working. It had some issues early on, but it's actually working the way we would prefer to and like it to. The value is not necessarily on their books. It's on our books. So the language that we use is Uber shared service. Um, but what we Were finding as we presented the opportunity to exit consortium ownership and join Thoma Bravo was um, the view that you guys can be good customers. Uh, you don't have to necessarily own the business to see the value. And frankly what was going on behind the scenes at the time is somewhat of reluctance to make decisions quickly and to invest, you know, aggressively in the business. And we felt we really needed that to capture the opportunities in front of us. We needed anyway there, there was a lot to do. And, and really the, the I think there was a, um, not complacency, but there was a sense that this is working. It's an uber shared service for the industry and it's, you know, it's performing the way we would, you know, that we expected it to. And I think from the internal perspective, the management team felt that we could potentially do more and even do more for those existing shareholders if we had, you know, the investments that we were looking for and could progress the organization in a more traditional fashion.

Speaker D: Makes sense. You mentioned that there was a lot to do. Uh, well, it feels like we did a lot in those short three years that we were together. Could you maybe just talk a little bit about the transformation of the business? Um, you know, what we, what the objectives were when we partnered together. You know, uh, as you, I'm sure you recall, the business at the time was growing kind of in the low single digits, uh, you know, never really had a profit motivation was losing money each year. Um, and you know, by the time we exited the business, it was growing, you know, in the low teens, highly profitable. Um, so a complete turnaround under your leadership. So I'd love to maybe hear a little you talk about a little bit, kind of what were the initiatives that got us there in such a short time frame.

Speaker A: One of the first things we did was work with you guys to outline, you know, what is, you know, what does an opening position look like? How do we right size this business not to be a shared service, but to resource it correctly in the right areas and appropriately. And that means that meant, you know, cutting some areas back, um, dialing things down and at the same time overloading areas that um, that, that were in existence. And maybe the additional dimension is begin to create functions that prior didn't exist. When you're selling to enterprise customers, people that own you, you don't need a massive sales team. The relationships to some degree, um, fill that void when you're gonna, when you're gonna join the groups, the ranks of uh, PE owned businesses and normal commercial businesses. You'll need a sales marketing function. You'll need to go to marketing marketing function. That wasn't second nature for us. So you guys absolutely helped us construct that with, you know, new, um, talent, people that were right for that role, experienced and had a familiarity with private equity and the pace of change. So I think initially it was us, right, sizing the business to the journey ahead, uh, attracting the right talent very, very quickly, making sure that they could assimilate and add value quickly. Um, and then, you know, not to get lost, when you think about the back office, how we metric our business, how we thought about measuring performance, et cetera, you guys really did come. This is where the operating partners and the team you guys have as an extended team add value and make a difference. You helped us think about the organization and the business differently in terms of how are we going to measure the progress that we're making, how do we measure the value, the inputs, and ensure that we're getting the value creation in the timeframe we expected. So I would say it's those early days. Those were the dimensions that stood out for me.

Speaker C: That's so well said, Richard. In some respects, the value creation journey that we went on with you mirrored that of many other companies that we've invested in. In other respects, it was completely different. Some of the discussions that we would have at a board level were just so different than our other enterprise software businesses. For example, we rarely talked about competition because this business, really, it's a1 of 1. It was designed that way as the singular platform upon which these primes could execute transactions with their suppliers. Um, and so instead, we would talk about how we could, for example, replicate success we had with one product, with a particular group of customers, with another, and have those discussions. I remember. And I'd be remiss if I didn't mention Vijay Techanty, who's been with you almost the entire journey. Vijay was the Chief Innovation Officer when we invested. He's still with you as the company's cto. He is phenomenal. He knows every inch, corner, nook and cranny of this business and its products. I'm not sure we would have gotten through due diligence if it wasn't for Vijay and just a phenomenal human being. And I remember him saying something in one of our board meetings that I will never forget. And I think I mentioned this at our closing dinner, too, Richard, which was, I think we were talking about a product that we were selling to one of the other six big primes. And I was very Confused as to why we weren't having the same success with Boeing. And I kept saying something like, well, guys, can't we just go and implement it the same way at Boeing? And you guys were politely telling me no or it was not going to work. You were trying to get me off that idea. And I kept insisting. And finally Vijay looked at me and he goes, carl, there is no other company on the planet like Boeing. Do you understand the scale and nature of their operations? What we can do with other customers does not necessarily and will not apply to Boeing. You have to understand that. And I shot up in the meeting immediately. And that was early days of our partnership together. And, um, it was a lesson in how unique the relationships were with these customers and how deeply ingrained we were in, in the individual operations of each of these businesses. So, uh, in some ways the value creation process, very similar in many ways. So, so different.

Speaker A: Yeah, that's exactly. And that's our story. That's, um. You know, I think everybody says their business is complex. I think ours is a little bit unique in that regard because we do serve some of the largest kind of think of the, at the apex of these highly regulated market verticals. And that's where we were. And we had, because of the joint venture ownership, we had unique access to senior leadership and the things that we would solve for. There are other technology providers out there that arguably were well placed to solve issues or complexities for them on a horizontal basis. But they had very tailored, what they believe were tailored workflows that they wanted to solve for, and they trusted Exostar to do it. We continue to leverage that unique aspect today. So, um, we're fortunate that these large multinationals trust us with largely the crown jewels of their business in terms of the workflows that we enable in the special role that we play. The easiest way to sum up what was the early phase, the first year or two, was largely getting this company that was not a normal commercial business, turning them into guys, if you're going to get in the game, you have to be commercial business. So I didn't say it that way, but in essence that's what we doing as a team is you're going to have to get ready, you're going to have to get ready to run differently.

Speaker C: And even on the leadership team around you and Vijay, we replaced really the entire team, which was a huge lift, I know, for the two of you, you especially, uh, to transition a cfo, a cto, chief Customer officer, um, chief Revenue officer, uh, that was definitely Um, a heavy lift.

Speaker A: Yeah, because you're, you're trying to assimilate really special talent, people that know their art, their, their functional art, um, in a traditional sense and assimilate them quickly into, you know, what's, what's still an immature business. The way, way I would sometimes tell people the story today is we're a 5 year old company and a 25 year old body. And the reaction is they smile and say, I don't understand. Explain that. And the answer is, look, two decades of joint venture ownership, you build certain muscles, you behave a particular way, you have unique, um, approaches to how you operate the business. And once you move out of that joint venture consortium ownership in particular to um, a sponsor like Thoma Bravo, you need to build different muscles. So, and injecting those different personalities and having them be successful quickly, really, really, um, there's associated challenges with it, but it's also a testament to the individuals that we were able to bring in, how successfully they were, they were able to deliver those results.

Speaker C: Yeah, that's so well said. This is a unique episode of behind the Deal. Usually we're speaking to the CEO of an existing company where midstream, the future is unknown. Here we know how this story ends. Uh, and so maybe let's fast forward then to early 2023. I remember starting to have conversations with you. Uh, Bill McKinsey was involved in these discussions around maybe it's time to look for an exit. We were approaching the three year anniversary of the deal quickly and we had done so much to transform the business as you've walked through, to transform the leadership team, to transform the culture of this organization. And now we kind of thrust you and this whole team that had kind of come together into a sale process, truly a process where there were many, many bidders, strategic and sponsor. Uh, we went quite wide in our approach to looking for who would be the next investor in Exostar. Give us your impressions of that process because really you bore the brunt of that. Of course we're sitting here in San Francisco nervously texting and asking you after every meeting, how did it go and what did they say and what did they ask? And tweaking the message along the way, but you got us through it incredibly successfully. Maybe give some reflections on that process. Uh, in early 23, one of the

Speaker A: things that I think was important was selecting who's going to be our partner on this journey because there's a third party, the investment banker and getting that right. I think we talked about a couple different recognizable names and just leaders in that space. And we coalesced around one that you guys had some recent experience with. Pretty favorable. And I think their reference point was uh, an organization similar to ours, a consortium business that they did real well on in terms of their understanding of the business and unique capabilities.

Speaker C: Yeah, shout out to uh, Arris partners, David Joncas and Rahul who just did unbelievable work to uh, yeah, be a partner to us in this, in this process.

Speaker A: I think just the selection of that partner as you characterize it on that journey was super helpful for us. The familiarity they, to some degree they ushered us through the process. I think even members of the leadership team that had great familiarity and experience with other exits and it was, it was a known and well traveled path. Um, I think those, that, that, that that firm was uniquely well positioned to help us.

Speaker D: So Richard, I wanted to ask you. There was a relatively large transformation upfront within the business. You know, the business was losing 4 million of EBITDA when we acquired it. I think the next year it did 15 million of EBITDA. So, so quite the turnaround. So I'd love to hear you talk a little bit about how did you maintain, you know, the culture within Exostar, make sure everyone was growing in the same direction towards uh, you know, the common goal we had of continuing to grow, continuing to be profitable, um, delivering the best in class experiences and products to our customers.

Speaker A: Yeah, to some degree it's. I started to give an outline of maybe the shareholder view of the joint venture and their view on Exostar, the value to them. And I'd reference briefly, you know, there's a management perspective as well. So uh, uh, let me kind of take that angle. In addressing the significant shift from the way you've characterized the change, the leadership team really did want to pursue more aggressively opportunities. I think the team had a long list of things that they felt we could, if we weren't successful, we should still try. And I think we felt that the organization was structured to address that Uber shared service and SLAs and metrics. And I think once we went through the exit process and worked with you guys directly, there was an enthusiasm. So yeah, we did a right sizing in the business. We recruited talent, we took chances on progressing, selling, you know, selling some of our solutions, adjacent solutions to non former shareholders. Right. To the rest of the community to diversify our position of customers. That worked and there was an enthusiasm within the team. When we stabilized the business, maybe around 2019, 2020, we'd kind of, kind of level Set to, settled into. This is just a, um, kind of a predictable shared service. There was a real enthusiasm from the organization culturally to embrace the opportunity. We'd worked really, really hard to get that degree of independence, to see if we could scale with, you know, with the best of the best. And, um, so probably easier than people may have assumed on the outside looking in. I think there was just a lot of pent up enthusiasm for, guys, this is what we've worked so hard to get to. Let's take advantage of it and make the most of it. And it worked.

Speaker C: That's so well said. I still remember, Richard. Um, so 13 months into the investment, we did a debt recapitalization and we were able to take out all of the equity in the business, which was the result of so much of the hard work that you just described, to get up the margins, to change the culture, to reorganize this business into being a true commercial enterprise software company. And obviously we were thrilled. We were on such a great path with this investment. And I remember, uh, you and I would speak on the phone quite frequently, um, and it was usually very tactical. There was an issue in the business, or there was something good happening in the business, good or bad, you would call me, we'd talk about it, and we'd work through it together. And I remember not too long after that recapitalization, you called me and we had a conversation and then you said, hey, so how do you think things are going? Are you getting everything you need from me? We had just recapped our entire equity check 13 months after the investment, and you were asking if things were going well. And I kind of chuckled to myself that, yeah, things are going great. And Richard, I think you're doing a pretty good job. Which is my way of saying this has exceeded all of our expectations and it's been phenomenal. And it ended up being a phenomenal journey with you. Um, the business has now been private or non, uh, consortium owned for six and a half years now. You've lived a long life and continue to live a life as a business that's sort of independent in a way. We, as investors, we continue to look at companies that have unique ownership structures. I'll call it either joint venture consortium or ESOP, or it's a 501c6 nonprofit, but it's running as a business and it's maybe looking to make a change to all of those businesses that are sitting in our deal pipeline today that we might meet over the next few years as investors. You know, what would you say to them to encourage them to consider doing what you did with us, you know, back in 2020?

Speaker A: I would suggest that they, they take a chance and lean into the discussion. Um, we were hesitant. It didn't happen immediately. We weren't. Wasn't 0 to 60 in six months. Wasn't, uh, an obvious yes. There was lots of complexity as you touched on, you know, 2017 to 2020 took years of keeping in touch development. I would encourage businesses that are a bit unique, not mainstream commercial businesses, that if you have an aspiration, if you have characteristics similar to what I've outlined that we had in our business, which is you have a sense that the organization may be within a different structure, different form, could arguably be more successful. And that may mean just make a bigger difference. Right. The mission's the same. It's just you can do more. And I would encourage people that are on the fence or considering it to definitely lean in and have a conversation. I think, you know, Thoma, Bravo, what you demonstrated to me is that what resonated with me at the time is the familiarity with consortium businesses. That was unique. So I think the range of experiences that you guys bring to a discussion, even an initial discussion like that, my experience is that it's unique. Um, there's a lot of, I think, uh, a lot of your peer group that looks for more traditional, uh, targets and partners. And I think, uh, the organizations that you articulated and outlined, Carl, they're a little bit less mainstream. And I think you guys, uh, I would encourage them to speak with you and consider a discussion and contemplate what a different future might look like.

Speaker D: We might need to get Richard in front of some of these, uh, CEOs of the companies in our pipeline.

Speaker C: Absolutely. Absolutely. How much spare time do you have these days, Richard? Do you want to join the deal team?

Speaker A: I wish I could, but we're pretty heads down at the moment. We've got, uh, we've got very aspirational targets on us these days. And, uh, but we're having fun. It's been a great ride. Uh, you guys really set a nice cornerstone for us and we're moving to a different, you know, we're, we're switching gears, uh, and excited about the opportunity in the future for us right now.

Speaker C: Yeah.

Speaker D: Well, Richard, we've covered, uh, a lot of ground. Anything you feel like we've missed the

Speaker A: no before the yes. I mean, you think about, you know, to your point, it was the. Is the first for the fun. It was a big deal. And the things that, like, even you'd reference the conversation. When we recapped the business after the first year, you probably assumed that people like Vijay and I had great familiarity with that. We didn't. That was a genuine question, like, hey, how are we doing? We didn't recognize that, hey, guys, that's a pretty significant milestone after just over a year. And the things that we used to talk about, like we didn't touch on today is like, did we do any acquisitions during that time? No, it's not that we didn't try to. We did for the first, probably almost two years. And then you think about the remaining year, and I think looking back on it, it was, guys, we don't have to. This thing is moving without taking added risk. You know, in the fourth quarter, we, you know, we're right where we want to be. This is a fantastic glide path. So there's that dimension. You, uh, know, if I. If I had an opportunity to thank you, Carl, for one of the things that I tell people when they say, hey, how was TB to work with? To some degree, for me, it broke the stereotypes around what's it like to work with private equity, and not just any private equity, but someone at the pedigree of Thoma Bravo. Um, and what people perceive an organization like Thoma Bravo demands from their portfolio. When the deal was a no, and you and I had that conversation, I fully expect that the cadence and the discussion wouldn't progress like they had the. The prior three years. Suddenly, we would turn, like, an awkward direction. And to your credit that I remember that discussion down in, uh, Florida, you step back from. You say, look, this does not happen at this stage. We are so far into this. And rather than kind of take it in a real awkward direction, you very quickly said, what do we need to do to revisit? Because we. We have to be successful here. I loved that. When I tell people our story, um, that's, you know, that's the piece that resonated with me, is we. It could have got really tense and. And reflected on the disappointment of the moment. And that lasted for about 15 seconds. And then it was very quickly, what do we need to do? Uh, to regroup. And we. This is a great. This. The story. There's a purity and a richness to what we're trying to do here. It's all, you know, there's too many good aspects for us to. To call it a day and. And move, you know, move on. So I love that aspect of it, of, you know, let's, you know, all Right. Everybody dust off. Let's do an assessment of where, you know, what did we miss? And let's get busy, you know, re presenting this and you know, and work it. And you guys did. Right, we, you did your piece with, uh, you know, your connections. And uh, we did, you know, we did our, our piece behind the scenes. It was almost like going through the, the tough times together, actually brought the teams together. And then the second piece that we didn't touch on, that I do share with people is the relationship with Bill McKenzie. And you know, we. Unique aspect is most of your portfolio companies. My impression as you meet quarterly for the board meeting. If you remember, we, we met monthly. We had monthly board meetings with you guys.

Speaker C: Oh, yeah.

Speaker A: And then the other dimension is when I think about the relationship with Bill McKenzie and I talk to Bill every. I want to say it's every Thursday or Friday and rarely did we miss a call. But through that three and a half year period with you guys, I never had a tough or awkward conversation with Bill. Fully expected I would. Always waiting for the other shoe to drop. And it never did. Bill's. The relationship was awesome. Always incredibly supportive, um, when we talked. And it's not as though we didn't talk about some really tough, complicated topics. But Bill, you know, on, on every instance, I can't recall, you know, out of three and a half years of working with him, a, uh, time where we differed considerably or he wasn't um, 100% supportive. And to some degree that instills a level of enthusiasm and confidence in a role like mine where you're managing different constituencies with different, you know, perspectives. Uh, not once in that three and a half years that I ever feel as though I didn't have Bill's support and packing. Even when I, you know, I, uh, wasn't sure about some of the other participants. So when you say what, you know, what are the things that, um, you know, what are the other things that we miss? Those are the things that, when I tell the story, Carl, those are the things that I start with. Those are the, those are the unique things. Um, and the counterintuitive pieces where you mean it was never hard for us. It wasn't, you know, to some degree it felt, um, we were working hard, but it never felt hard.

Speaker C: It felt hard to us. I don't know.

Speaker D: Yeah, I remember plenty of emergency weekend calls that, you know.

Speaker C: Yeah, yeah, but, but good or bad, we always work through it as a group.

Speaker A: Yeah, it's been a great discussion, guys. As I said, I'm enthusiastic about telling the Exo star story, but it does remind me of, uh, I'm a big fan of Lou Holtz, and he had used to have a saying, it's 10, 90, 10% of what life throws you and 90% of how do you guys react, how you react to it as an individual. And I. I think that's our story. That's. We've had some unique twists and turns thrown at us, but I think we've together, uh, navigated and really reacted well to the opportunities and, as I said, position the company for unique success and a fantastic trajectory.

Speaker C: Richard, this was just such a treat and a joy to be able to relive our time together. Uh, I've told you this before, and I'll say it again. I know Adam feels the same way. We are so incredibly grateful for the partnership that we had with you. Uh, it was the first, uh, investment that I led as a head of a new platform at Thoma Bravo. Uh, it was the first investment I was able to do with Adam and Sam. Um, I felt like in some respects, I grew up as an investor in this journey. Uh, we're so appreciative and grateful that you gave us this shot and you helped shepherd this deal through. It's amazing to see the success that you had with us as partners and now with a new partner in Arlington who's just phenomenal as well. And I know you're doing great things with them, so we wish you nothing but the best going forward. And so grateful for the journey we had together.

Speaker A: No. And likewise, Carl. Uh, there's a lot that we didn't discuss this afternoon in terms of that journey, but you guys have been fantastic. Uh, the early part, getting through the deal and then progressing to the success and putting us on the trajectory that we are currently. Uh, couldn't be more grateful to you and the team for. For that foundational start. So, Adam, thanks. Thanks to you as well. And extend my thanks to Sam, please.

Speaker C: Of course.

Speaker D: Well, um, thanks so much, Richard.

Speaker A: Have a great day, guys.

Speaker B: Listen to Thoma Bravo's behind The Deal Season 4 on Spotify, Apple Podcasts, YouTube, or wherever you get your podcasts.