Exclusive-Thoma Bravo nears agreement to turn software firm Medallia over to creditors, source says

By Milana Vinn and Isla Binnie

NEW YORK, April 22 (Reuters) – Private equity firm Thoma Bravo is nearing a deal to spin off software company Medallia to its lenders, completing months of restructuring talks, according to two sources familiar with the matter.

The move will wipe out $5.1 billion in equity capital of Thoma Bravo and her co-investors, who bought the customer service software company for $6.4 billion in 2021, said the sources, who asked not to be identified because the discussions are private.

Medallia has been struggling in recent months with the weight of $3 billion in debt owed to Blackstone, KKR, Apollo Global and Antares Capital.

Thoma Bravo, Blackstone and KKR declined to comment. Apollo and Medallia did not immediately return requests for comment.

Like other software companies, Medallia’s valuation has taken a hit in recent months amid concerns that its services will be replaced by artificial intelligence. Medallia provides software that collects and analyzes customer and employee feedback for companies.

Private equity firms invested heavily in the software sector during the period when interest rates were low following the peak of the COVID-19 epidemic. Investors have become increasingly uneasy about the sustainability of the high valuations given to some of these assets and the debt raised to purchase them.

Blackstone, KKR and Ares Capital Corp hold some of the debt in traded and non-traded funds. FS KKR Capital Corp marked debt at 79 cents on the dollar in its latest quarterly report, while Apollo Debt Solutions pegged it at 74 cents. Ares Capital marked the loan at equal.

(Reporting by Milana Vinn and Isla Binnie in New York; Editing by Dawn Kopecki, Vidya Ranganathan and Lisa Shumaker)