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KEY TAKEAWAY: Zuora customers, prospects, and partners should not expect major disruptions in strategy or innovation investment with Zuora’s transition to private equity ownership. Typical short- to medium-term issues with employee retention, pricing, customer support, and potential changes to the product roadmap will need to be monitored and discussed with Zuora management.

 

The acquisition and go-private transaction of Zuora by Silver Lake and GIC (Singapore government investment fund) is the culmination of a comprehensive effort assessing strategic alternatives – e.g., to recapitalize the company, be acquired, or go private. Prior to the transaction, Zuora was intensely focused on consistent improvement in profitability and cash flow. Going private will provide the company with more flexibility in decision-making and ability to restructure the business for the next stage of growth. Profitability will remain important, but topline growth and market share gains will once again become core elements of overall strategy. Post-closing, Zuora will be a private entity with just under US $500M in sales, near GAAP profitability, and over 1,000 customers.

Private ownership and additional financing will enable Zuora to effectively restructure its business and position it for the next stage of growth towards the US $1B revenue mark. Employee stock pools may end up being repriced, thus aiding in retention of key staff. The company will also have more room to pursue strategic acquisitions. At the same time, Zuora will have to tackle the challenge of reaccelerating topline growth. Silver Lake and GIC are experienced and deep-pocketed tech investors and will likely provide the management team with considerable latitude in driving the company’s strategy. MGI does not expect any dramatic near-term changes in Zuora’s customer operations, pricing, or support. The transaction is expected to close in CYQ1 of 2025.

This is not Silver Lake’s first investment in Zuora. In March 2022, Zuora announced Silver Lake’s $400M investment aimed at accelerating organic and inorganic growth. Joe Osnoss, Managing Partner at Silver Lake, joined Zuora’s Board of Directors at the time. Since then, Zuora acquired Zephr (subscriber management solution, announced in August 2022), Togai (usage billing solution, announced in April 2024), and Sub(x) (AI tool for digital publishing and media, announced in June 2024). Bottom line, Silver Lake has a deep familiarity with and approval of Zuora’s strategy and tactics.

Public market investors have a limited understanding of the dynamics of enterprise software investing in general and in the monetization space specifically. While there is no question Gen AI will have an impact on business software, the naïve and, in our view, completely erroneous, belief by some institutional investors that Gen AI will completely render obsolete enterprise software has broadly impacted all enterprise software equities. Once these fantasies begin to collide with the reality of business customers who depend on predictable, auditable outcomes from software solutions, the pendulum will swing back. Such a cycle could take 18-24 months and being a private entity during this transitional period is a smart strategy. Being a private entity in the interim will allow Zuora to make strategic investments without the pressures of quarterly reporting.

Long term, this acquisition may lead to increased operational efficiency and potentially accelerated growth, and result in a more focused product strategy that may affect some customers’ use cases. Items to monitor include potential changes in pricing or contract terms and shifts in partnership strategies.

Recommendations for prospects:

  • MGI does not recommend putting contract negotiations on hold “until the dust settles” as investing in Zuora applications does not pose a risk.
  • While negotiating on the contract, do not rely on verbal assurances from Zuora sales reps. From MGI research note Software Negotiation Strategies: 15 Best Practices: “Best Practice #12: Require Written Communications.”

Recommendations for customers:

  • Establish formal monitoring of potential concerns mentioned above.
  • Create a regular cadence of meetings with Zuora sales and management to get updates and discuss concerns.
  • Join the Zuora Community and relevant Community Interest Groups to network with peers and share information.
  • Plan and budget to attend Zuora Subscribed! In-person conferences to network with peers and have informal conversations with Zuora staff.

MGI clients are encouraged to connect with an analyst to discuss implications of Zuora’s acquisition for your organization, whether you are a corporate buyer of technology or a vendor. To schedule an inquiry, email MGI Research or call +1 888 801 3644.

Related Reading:

Agile Billing Top 50: A Buyer’s Guide (June 28, 2023)

Automated Revenue Management (ARM) Buyer’s Guide 2024 (August 15, 2024)

MGI Ideal Customer Profile™: Zuora in Agile Billing (June 28, 2023)

Software Negotiation Strategies: 15 Best Practices (October 19, 2024)

Use Case Note: Zuora Revenue (March 18, 2022)