Thoma Bravo handed Medallia to its lenders in April after the software company’s debt service reached $300 million annually, surpassing its earnings of roughly $200 million. The private equity firm had acquired Medallia for $6.4 billion in 2021, but the company’s financial strain led to a wipeout of about $5.1 billion in equity held by Thoma Bravo and its co-investors, according to saastr.com.
The transaction transferred control of Medallia to lenders including Blackstone, KKR, Apollo, and Antares. The core issue was the company’s inability to cover its debt payments, a gap that had persisted for some time but remained obscured due to the use of payment-in-kind (PIK) debt. PIK debt allows interest payments to be deferred and added to the principal, delaying visible signs of financial distress until the burden becomes unsustainable.
Medallia’s situation is the second major private equity software deal to collapse in 18 months, following Vista’s handover of Pluralsight in 2024. Several other software companies acquired at peak valuations and loaded with debt face similar risks. The PIK debt structure often masks these problems until a critical point, making timing a key factor in identifying which firms will face similar outcomes.
The Medallia case highlights the risks of high leverage in private equity software deals, especially when PIK debt is involved. The company’s earnings of $200 million were insufficient to cover $300 million in annual debt service, triggering the transfer of ownership to lenders in April. This event underscores the challenges in managing debt-heavy acquisitions in the software sector.