Drake receives substantial investment from Private Equity

Drake Tax Software received a significant Private Equity investment from Cinven.

https://www.cpapracticeadvisor.com/tax- ... e-software

I've been through this before with two other tax software companies. Neither event turned out to be good for users of the software. I wonder how this will play out?

Doesn't exactly give me a warm and fuzzy feeling...but we'll see.

When a venture capitalist invests in a family owned business their goal is to increase the company value, sell it and make a profit and get away. They are not there to hang around for long!

Yea we went through several buy outs/mergers too. CPAID was our first software (dinosaur times), then they got bought by "Best" software. Then Proseries (Intuit) sucked them up.

Software providers I have known...

Accutax. Compucraft and Lacerte. Only Lacerte survived the buyout....although after Intuit bought them, they were never the same.

I don't see Intuit wanting to buy Drake, but you never know. I wonder if H and R block wants to venture into professional tax software?

Software providers I have known...

Accutax. Compucraft and Lacerte. Only Lacerte survived the buyout....although after Intuit bought them, they were never the same.

I don't see Intuit wanting to buy Drake, but you never know. I wonder if H and R block wants to venture into professional tax software?

Well they acquired RedGear Taxworks and then killed it! Maybe it rises from the ashes!

Pencil Pushers -> Tax Relief -> UltraTax

Tax Relief was a great forms based software but they got acquired by UT.
Pencil Pushers was a little before my time, but was still installed for 1998 and older returns.

I would assume Drake will be merged into another software provider soon, for the market share alone.

At the end of the deal Drake tax software will not even look and feel like the existing version. It will be a new ballgame

Drake could double their prices, where you gonna go?

Drake could double their prices, where you gonna go?

Back in the market checking out other tax prep software available at that time. I have used ATX before so that is on top of the heap!

If you use Drake software, you probably would be more than willing to pay for it even at double the price. The pain of learning a different tax software plus the errors and missed items you will have in a conversion is crazy.

When a venture capitalist invests in a family owned business their goal is to increase the company value, sell it and make a profit and get away. They are not there to hang around for long!

For sure. On average private equity own companies for 5 years. They bought based on a multiple of EBITDA and will be planning to sell it on a multiple of EBITDA. So they'll do whatever increases EBITDA. They will almost certainly reduce headcount so I imagine customer service will decline, and maybe even move offshore. Employees are expenses and not assets in the EBITDA model. They might focus on creating or overhauling the add-ons and almost certainly will be increasing the base price. I'd expect them to overhaul the software so it looks less like it's in Windows 3.1, and maybe even get rid of the desktop option.

If I was looking for new software right now, I would be looking elsewhere just because of the entry of new private equity.

For sure. On average private equity own companies for 5 years. They bought based on a multiple of EBITDA and will be planning to sell it on a multiple of EBITDA. So they'll do whatever increases EBITDA. They will almost certainly reduce headcount so I imagine customer service will decline, and maybe even move offshore. Employees are expenses and not assets in the EBITDA model. They might focus on creating or overhauling the add-ons and almost certainly will be increasing the base price.

That is the SOP of private equity investment outfits. HR is generally the biggest expense they need to trim and they can get programmers and coders for pennies on the dollar in India. The worst part is some of them folks in USA will be teaching Indians to take over their jobs! I have seen this happen many times. Once the fat is trimmed and the company value has increased it will be time to call in the bids

Privately owned equity companies probably own for an average of five years - Did Drake give up their current ownership or did they get a loan that will convert to ownership if goals of Drake are not and it is repaid in a certain time period. either their product gets better and more expensive - is that a downside???

Generally the venture capitalist provide the funding in exchange for equity and a controlling position in the company's board of directors so that they can make the strategic decisions. They let the local management group take care of day to day operations. Once the company is "fattened up" it goes to the auction market. The original owners probably received a significant down payment and the rest structured is some fashion. The article did not give any specific details except that the deal is being reviewed by the regulators. This happens routinely in the tech world.

Privately owned equity companies probably own for an average of five years - Did Drake give up their current ownership or did they get a loan that will convert to ownership if goals of Drake are not and it is repaid in a certain time period. either their product gets better and more expensive - is that a downside???

To expand on ATSMAN's excellent post: Private equity doesn't usually do loans because loans don't provide enough return. If they're going to take on the risk of putting money into a company, they typically want a significant ownership stake and significant levels of control with the goal of making a huge profit at the end.

This is just speculation, but I would guess that the family wanted or needed to get out of the business and given Drake's size it would be difficult to find any type of buyer other than private equity or one of its competitors. It's the plight of the mid-sized business world.

So "missing" your saying the private equity already has ownership in DRAKE??? How much?

So "missing" your saying the private equity already has ownership in DRAKE??? How much?

The press release says that they have agreed to make a significant investment and that there are regulatory hurdles to overcome. So, I doubt that an investment has been made yet but that there have been contracts signed. The amount was not disclosed.

Thanks

Perhaps the Private Equity folks are thinking, "how can I turn Drake into an Intuit- then IPO it".

Price increases incoming.. probably.

If I were a Drake user - I'd be looking for a back-up / Plan B

This concerns me. I've been a Drake customer for about 13 years now. I've gone through a process of "semi-retiring" at the age of 71, and I was "sort-of" looking forward to spending the next 10 years working with some great clients; but... if I have to change software companies, I need to re-think this entire process.

Drake's been a great company and their business ethics are impeccable ... except for the one time Adam Drake censured and deleted a post of mine in their forum that was critical of Drake ...

Their forum is a great asset, and their annual one day update classes they did in Las Vegas and other cities were some of the best CE I've ever taken. But, if Private Equity gets involved, we've probably seen the last of the Update Schools. Their profit needs are much higher than medium-sized, family-owned businesses. I've been on both sides of these transactions that have worked out well for all parties, but it was many years ago, and the profit motive is much stronger now for Private Equity than it was 20 years ago.

I'm hoping that the plan is to use the Drake platform to compete with Turbotax in the personal tax arena, which wouldn't bother me. Or, maybe some other plan, that leaves the Drake professional software intact, based in Franklin. I liked what they did in establishing call centers in Nashville (in the Central Time Zone) and Virginia Beach to spread their physical plant geographical footprint a little wider.

Let's hope and pray that Phil hasn't decided to abandon this great company and its customers, and Franklin...

They probably will start making small changes next tax season like dropping DA and increasing the renewal fees. Next they will try to either completely revamp the software because it is written in POWER BASIC language and the look and feel is from the early 2000. When that happens watch out the prices will be more in line with what Intuit, CCH, Wolter Kluers etc. charge for their tax software.

I think it is prudent for all Drake users to look at what is available after this tax season ends and start making Plan B

They probably will start making small changes next tax season like dropping DA and increasing the renewal fees. Next they will try to either completely revamp the software because it is written in POWER BASIC language and the look and feel is from the early 2000. When that happens watch out the prices will be more in line with what Intuit, CCH, Wolter Kluers etc. charge for their tax software.

I think it is prudent for all Drake users to look at what is available after this tax season ends and start making Plan B :x

I agree....but the problem is that many of the "Plan B" companies that I am familiar with-----like Lacerte-----involve a huge price increase.

Of the companies that seem to be closer to Drake in price, many seem to be online only. I would be concerned about only being able to access the program online. I seem to recall some companies having problems one year that shut down online access for a few days during tax season. That could be a disaster.

Other than Drake, what are the more moderately priced software packages that include a desktop option?

We use ProSeries, which is priced a bit higher than Drake. I trialed ATX over the summer and what I saw looked good. We didn't switch for several reasons, most importantly twenty-two years of combined ProSeries experience for my partner and me, as well as staff that is quite familiar with it. I like to shop software every summer just to see what is out there.

Who has experience with TaxAct?

Other than Drake, what are the more moderately priced software packages that include a desktop option?

ATX

Tax Act

I have used both of them before though I hear Tax Act has really matured since I last tried it in 2007 or 2008!

This could possibly mean retirement for me. Every June is renewal time. I get Drake from Ultimate Tax. Last I looked, their other software was Taxwise, which I m not a fan of.

MikeH, I do. About twenty years combined consumer and pro. it was pretty rubbish in the early days and I gave "feedback" every year. Then it got better and about three years ago, I moved there for my paying clients. Last season it went backwards for anything but the most basic returns. Depreciation and SEHI were particular issues for me - being unable to e-file. You can only add a PDF to the e-file if TaxAct says you can.

Having said that, when it works it is efficient and the e-file acknowledgements I got were a cheap added-value service for my clients. I had a long chat with my sales rep after I had decided to switch to Drake and she made, I think, careful note of my concerns.