WSO2 recently held its London Conference, Oxygenate, at the Brewery London. Enterprise Times attended and caught up with Devaka Randeniya, Chief Revenue Officer at WSO2. We discussed several things, including the EQT acquisition and what that means for WSO2.
Randeniya joined WSO2 in November 2006 from Virtusa, where he was a senior software engineer. He was hired as the Director of Business Development, making him the company’s first sales rep. Since then, he has focused on sales until being appointed CRO in 2020. That experience gives him a unique perspective on the company’s sales and revenue.
Over the last two decades, WSO2 has seen steady growth. It now turns over $100 million a year. In that time, the company only took $133 million across six funding rounds. It means that it has funded most of its growth and development from sales.
Why accept the EQT offer?
Earlier this year, the company received and accepted an offer from private equity firm, EQT, to buy the company for $600 million. We asked Randeniya about that acquisition.
Randeniya commented, “The acquisition was primarily driven by the investors, specifically Toba Capital, wanting to exit and get a return on their investment. WSO2 had been a cash flow-positive organization, so the need for capital was not the driving factor behind the acquisition.
“Through a banker, we initiated a proper process that led to multiple bids and conversations. Ultimately, EQT was chosen as the right fit due to their status as one of the largest private equity firms in the world, with a strong presence in markets like India.”
Becoming part of the EQT empire is interesting. Like most PE firms, it has a very wide portfolio of companies. One of those is SUSE, which it acquired a few years ago. WSO2 has a long history with SUSE, so it was reasonable to ask if this was just about the money.
Not according to Randeniya. He emphasized that the strategic fit and the opportunity to access EQT’s resources and relationships were key factors in the decision to partner with them. He also mentioned the breadth of the EQT portfolio and SUSE and IFS. This means that there is potential for synergies and growth opportunities with EQT.
What is the room for integration with another EQT company?
Enterprise Times has often been critical of the failure of PE and VC companies to combine their acquisitions. They collect them like a child collects football cards, ignoring the potential opportunities for building new and larger companies. Randeniya said that he understood that but sees a different potential for WSO2 and is optimistic that this relationship with EQT could work well.
We asked if that meant growing WSO2 as a stand-alone company or a merger with another EQT-owned tech business?
Randeniya said the decision will ultimately depend on where the best return on investment can be achieved for the EQT fund. Interestingly, it appears that EQT is already making introductions and fostering discussions around technology and go-to-market strategies with other vendors.
The past relationship with SUSE suggests an alternative, especially after Randeniya commented, “We look at this EQT SUSE match almost as a competitor to the Red Hat position.”
Would WSO2 be open to being embedded into SUSE and becoming its API business? The answer was “It’s too early to tell, but we simply don’t know. At the end of the day, I think it’s how do we compete with Red Hat? Whether we become an embedded component within the SUSE infrastructure, or stay independent, is yet to be seen.”
If EQT does bring SUSE and WSO2 together to provide an alternative to Red Hat, it will be interesting to see if it stops there. There are other companies within the EQT portfolio who could licence technology into that arrangement or even become part of it. Alternatively, EQT may choose to keep WSO2 separate and just focus on accelerating the licencing of its technologies to other companies.
Mergers and acquisitions?
Since it was formed, WSO2 has only made one acquisition and that was Platformer back in June, 2021. Whether that was due to not finding the right fit, the right technology or the right people is not clear. But now it, as part of EQT, has access to a deeper pool of money, so what are its plans?
Randeniya commented, “We are actively talking to organizations in terms of acquiring. It could be one of two things. One is, how do we acquire to extend our go to market reach? It could be in certain up and coming markets and so on.
“The other is, how we complement or fill in any feature gaps. If you look at Choreo it’s a category creator in that space in itself. If you’re talking about how you build an ecosystem around Choreo, it’s something we are looking at down the road.
“M&A is very much top of mind through this acquisition, because now we have access to deep pockets to do things. There’ll be more news down the road that front for sure.”
Interestingly, Randeniya wouldn’t be drawn on who it is looking at. But it does raise questions. If it is actively pursuing acquisitions, how would that fit with a more integrated WSO2/SUSE partnership or merger? In fact, given how interested Randeniya is about the idea of a possible SUSE merger, would any acquisition be something the two companies are discussing to fill any additional gaps that WSO2 alone would not fill?
What is the end game for WSO2?
Sanjiva Weerawarana, founder of WSO2, has always wanted to take the company to an IPO. Assuming that there is no WSO2/SUSE merger, what would the company’s end goal be? Is it going to be with EQT for the long term? Could EQT sell it off? Will EQT set it up for an IPO?
Randeniya pointed out that EQT, as a private equity firm, will want to see a return on its investment. He believes that they like to take a long-term view of their investments, over periods of five to ten years.
One company that they purchased, IFS, has done incredibly well under EQT. Last year it saw a 33% rise in software revenue. In Q1, 2024, IFS had the best quarter in its history. Randeniya pointed out that when EQT acquired the company it spent around $1 billion, It is now worth over 10x that. That sort of growth is exceptional and not every company in EQTs portfolio has done that well.
Looking at the wider portfolio, Randeniya says that EQT has done some really good acquisitions and exits. For him, it is evidence that it brings the right level of experience that will benefit WSO2. He also brought up the SUSE link up saying that “We tried to get together with SUSE back in the day and we simply weren’t able to. We feel now that this is a real possibility.”
Enterprise Times: What does this mean?
This was a remarkably open and frank conversation with Randeniya. His willingness to talk about the company’s goals, the acquisition and, most of all, the SUSE situation was a surprise. It is hard to think that he would have been so open if there weren’t serious talks ongoing already about some form of WSO2/SUSE tighter integration or even merger.
Whatever happens in the future, one thing is for sure. WSO2 is in for quite a ride and with EQT behind it, it has the financial muscle and external management to make its dreams come true.
