by Jim Lundy

When private equity firms invest in a software company, sometimes they hold it for a long time, and sometimes they don't. In this case, Thomas H. Lee has decided to put its enterprise content management systems (ECM) provider Alfresco up for sale. This blog discusses the sudden shift and the implications of Thomas Lee’s decision to sell Alfresco.

2018: Private Equity Firm Thomas H. Lee Partners Buys Alfresco

If we jump back to February 2018, that was when Thomas H. Lee decided to invest in privately-held Alfresco Software. For most of 2018 and 2019, an insider, head of sales Bernadette Nixon, was CEO at Alfresco. It was only in November 2019, that Jay Bhatt decided to take over as CEO. Note: at the time of the acquisition, Jay was part of the Thomas Lee investment team. He stepped down after he assumed the Alfresco CEO role.

The Enterprise Content Management Market Is Harder to Succeed in Than People Think

In our opinion, we suspect that Thomas Lee discovered is that succeeding in ECM is harder than many imagine. That is why there are so few good enterprise content management vendors. Also, because ECM software is not a specialty of Thomas Lee, and because of the challenges in the market, they decided to divest. In the past, the decision to put the company up for sale was usually highly confidential and end-users only found about the sale after it was announced who the new buyer was. Today, it's hard to keep secrets. According to PE Hub, over six different individuals have confirmed that the company is for sale.

Alfresco is a provider of enterprise content management solutions that is now up for sale.

What Happens Next with Alfresco?

It's unclear that a buyer will be found, but we expect a buyer will take the asset. Likely buyers could include OpenText Software, which have over 25 content management brands under its roof. However, because OpenText has so many brands, Alfresco may actually be redundant. We would suggest that it's only a 20% probability that OpenText will buy.

What Should Enterprises Do in the Meantime?

Since it’s now become public knowledge that the company is for sale, buyers will need reassurance from the Alfresco that nothing will change between now and the potential sale. Failing this reassurance, however, enterprises looking for an enterprise content management system should enquire about the future roadmap for the provider. Prospective or current customers should ask for details on what the company's future plans are.

Bottom Line

Software companies have become just a set of assets to private equity firms. They buy and sell them like stocks. This isn't a new phenomenon, but what is new is that it's happening with more regularity. Enterprise buyers need to be on guard for this trend and make purchasing decisions with that in mind.

Editors Note: This blog was updated based on feedback from Alfresco.