Robert F. Smith haunted by tax scandal after losing race to Denver Broncos: sources

This spring, Robert F. Smith, America’s richest African American, landed in the spotlight when the NFL urged him to buy the Denver Broncos to help the league resolve an equity crisis. racial.

Now, after losing a contest to buy the team from Walmart heir Rob Walton, the 59-year-old billionaire is grappling with his own crisis as he struggles to raise a new flagship tech fund for his technology company. takeover Vista Equity Partners, The La Poste has learned.

The problem: Vista appears to be struggling to attract investors not only because of recent turmoil in the tech sector, but also because of upheaval within the fund after Smith – whose fortune is estimated by Forbes at 6, $7 billion – got involved in tax evasion. scandal at the end of 2020.

Smith — who is the president of Carnegie Hall and who shelled out $34 million in 2019 to pay off student loans for the entire Morehouse College graduating class — avoided federal prosecution for tax evasion on hundreds of millions of dollars in corporate profits. investment by cooperating as a witness against Robert Brockman, a Vista seed investor who was criminally charged in 2020 in a record $2 billion tax evasion case.

Nonetheless, insiders say the scandal continues to haunt Vista. Co-founder and ex-chairman Brian Sheth – a respected rainmaker whose prowess in finding deals was credited for much of the company’s initial success – reportedly quit after Smith refused to hand over the business. reins, albeit temporarily, as he negotiated with the Department of Justice in the tax case. At the time, Sheth said his departure was unrelated to Smith’s “personal matter”.

Former Vista chairman Brian Sheth quit the company after Smith refused to hand over the reins as he dealt with his tax case.
Bloomberg via Getty Images

Recently, signs have surfaced that investors could get nervous about Smith running the business solo. In October, Vista reportedly launched an effort to raise a new buyout fund worth between $20 billion and $24 billion – eclipsing the $17 billion it raised for its last flagship fund in 2019 – at the largest tech-focused buyout fund ever created.

Vista had targeted its latest flagship to achieve a “first close” in April, according to the Wall Street Journal, meaning an initial trove of cash would be available to invest. But Vista has only received $9.4 billion in commitments so far, and it’s unclear whether the company has started rolling it out, sources familiar with the matter told The Post.

A Vista spokesperson declined to comment for this article.

The New York state pension fund invested just $400 million in Vista’s new fund in May after committing $500 million to the smallest fund in 2019, according to public filings. The Oregon Public Employees Retirement System revealed in a March filing that it had only committed $250 million to Vista’s new fund after investing $500 million in 2019.

Some government pensions have a policy of not investing with those who have defrauded the government, said a Vista investor, adding that his pension has yet to make up its mind.

Robert F. Smith
Smith chose not to make a formal offer for the Broncos after some Vista investors expressed concern that it would be too distracting while he manages the business.
Getty Images

This is an especially tricky point given that Vista’s rival – tech-focused buyout fund Thoma Bravo – closed a fund of more than $20 billion in May after being in the market for roughly the same time. This is after Thoma Bravo topped Vista’s 2019 fund with his own fund of $17.8 billion.

The shortfall comes as Smith is running Vista for the first time without Sheth. While investors appreciate the importance of this, some point out that Vista has used a formula for its acquisition targets, almost always enterprise software companies, which includes acquiring rival companies in the same space and their combination to reduce costs while gaining weight in the market.

“Do they need Sheth to oversee the business management process? I don’t think so,” said a current Vista investor. “I think where it could be useful is in the pricing of offers.”

A possible example: Vista partnered on Jan. 31 with Elliott Management to buy software giant Citrix for $16.5 billion, or $104 a share. A historic rout in tech stocks has since followed, with insiders believing Citrix’s value has been halved. Nonetheless, Citrix is ​​trading above $98 per share as the market believes the $104 deal will close in the coming months due to a tightly drafted merger agreement.

Smith lost the Broncos to Walmart heir Rob Walton.
Smith lost the Broncos to Walmart heir Rob Walton.
PA

Banks that agreed to fund the deal stand to lose $1 billion by selling Citrix’s debt at well below par, an adviser to private equity firms said of the Citrix deal.

“It’s the biggest bust of the year,” the adviser said.

For comparison, Elon Musk suggested he could walk away from his deal to buy Twitter for $54.20 per share, but the social network’s shares are trading at just $38. The difference: Vista buys companies, and if Smith breaks a merger deal on what is seen as a flimsy excuse, it will be very difficult for him to gain the trust of other vendors.

Smith chose not to make a formal offer for the Denver Broncos after some Vista investors expressed concern it would be too distracting while he manages the business, sources said.

Despite the setbacks, insiders say Smith appears to be focused on Vista’s future – and that he seems to think more about offense than defense.

Just a few weeks ago, Vista was looking to take advantage of the technology market dislocation and acquire software companies trading at nearly 52 weeks, said a source with direct knowledge of the situation. Vista did this by sending opportunistic letters intended to pressure a company into selling, according to a source familiar with the matter.

“Vista calls CEOs to see if they’re interested in selling, CEOs say no, then they write letters to directors to force board meetings,” the source said.

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