UPDATED 19:33 EDT / MAY 28 2023


No deal: New Relic ends talks with private equity firms over leveraged buyout

Talks on a possible acquisition of New Relic Inc. by the private equity firms Francisco Partners Management LP and TPG Inc. have reportedly broken down.

A report Friday by Reuters that cites people familiar with the matter said the two suitors were unable to secure enough debt financing and failed to meet New Relic’s valuation expectations.

Details of the negotiations were first reported by the Wall Street Journal earlier this month. The two private equity firms reportedly were putting together a leveraged buyout bid worth around $5 billion. Had the deal concluded, it would have seen New Relic delisted from the public stock market. However, the failure of the talks underscores the difficulties faced by private equity firms as they seek to finance such deals.

Higher interest rates mean debt has become more expensive, while lenders have also become more risk-averse amid concerns over an economic slowdown. That’s especially true in the case of technology firms such as New Relic, which has strong revenue but limited cash flow.

That explains why mergers and acquisitions in the tech industry have been muted this year. As of May 12, private equity firms had completed $73.2 billion worth of leveraged buyouts this year, down from $111.1 billion in the same period last year.

Reuters said New Relic has been negotiating with potential acquirers on a sale since the middle of last year, when reports first emerged that the company is looking to find a buyer. The company, which sells software that’s used to track the performance of applications, services, DevOps environments and the infrastructure they run on, has struggled in recent years after shifting its business model to a consumption-based pricing structure. It’s said to be keen to go private to avoid public scrutiny as it completes its transformation.

It’s not clear how big the gap in deal price expectations is between New Relic and its suitors, but the company’s stock fell by 5% during Friday’s trading session, leaving it with a market value of about $5 billion. It’s possible that negotiations may resume in the future, Reuters said.

New Relic may also have other options on the table. According to Reuters, it has previously been targeted by activist hedge funds that include Jana Partners LLC, Engaged Capital LLC and Eminence Capital LP. Last year, Jana managed to win representation on New Relic’s board of directors.

Photo: New Relic

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