“We do what we call ‘complexity arbitrage’. We try to buy confusion at a discount and sell clarity at a premium.”
Who said it: Dipanjan “DJ” Deb, Francisco Partners Managing Partner
In Context: In an interview with Deirdre Bolton on Bloomberg Television’s Money Moves, Dipanjan “DJ” Deb described where the opportunities are to be found in the tech sector for PE investors, highlighting his funds catchy signature idea called ‘complexity arbitrage’, which is about acquiring companies in a complex industry or a difficult to understand niche and then working on the strategy and the story to make it a more valuable venture.
Francisco Partners has had a good run on exits this year with both IPOs and strategic acquisitions of portfolio companies. Buyouts in the tech sector are a fairly recent phenomenon. It is usually the territory for VCs, but the sector has matured and has become the fast middle market. It is now attracting the kind of investors that only invest in established industries with regular revenues and relatively predictable economics and growth prospects.
Unlike consumer Internet valuations in this area of tech are low. According Deb there are about 6000 “orphan” companies in the US market alone. An “orphan” as defined by Deb is a publicly traded company with around a billion in market cap – and only a few stock analysts covering it, or a division of a larger technology company, either privately or public owned, that can be spun off and grown.
Where we found it: Bloomberg