In September 2016, Petra invested alongside Thoma Bravo in the recapitalization of T2 Systems, an Indianapolis, IN-based provider of parking management technology, from Pamlico Capital. T2 offers a comprehensive platform to make parking management and enforcement as seamless as possible. Over 1,100 customers including universities, municipalities and private operators, rely on T2 for multi-space pay stations, permit management, enforcement, PARCS, vehicle counting, citation services and event parking. This investment is Petra’s second in T2, after initially investing in the Company in a prior fund and exiting to Pamlico Capital several years ago. Petra invested a combination of subordinated debt and equity.
Situation
In 2007 Petra was introduced to T2 through an Indianapolis-based business broker engaged to assist the company in raising growth capital. T2 founder and CEO Mike Simmons had successfully built T2 without any outside institutional capital, instead choosing a deliberate growth plan funded through retained earnings and an accounts receivable based line of credit from a local bank. However, in 2007 T2 recognized it needed longer-term junior capital to fund the working capital required to support its its accelerating growth and its transition from a license- based software model to a subscription-based model. In T2, Petra saw an outstanding management team that had created a market leader with a defensible position in a niche market. From a financial perspective, T2 possessed many of the attributes Petra finds attractive, including positive EBITDA, a high level of recurring revenue, high gross margins, and accelerating growth supported by long-term customer contracts.
Petra’s Role
As part of its fundraising process, T2 received multiple proposals from venture firms, but chose to partner with Petra because it found the cost of capital from venture financing unacceptable relative to its stage of development. Petra structured a creative $3.0 million preferred equity security with a 10% current pay dividend that provided Petra with an attractive return opportunity, but was less dilutive to management than a traditional venture equity security. Petra later invested an additional $1.2 million to buyout a passive shareholder. Petra served as a valuable advisor to management throughout its investment period though its position on T2’s board of directors.
Results
During Petra’s investment, T2 completed its transition to an SaaS company and entered a new market segment with commercial parking operators. From 2007 to 2011, T2 more than doubled its revenue and EBITDA. In early 2011 Petra introduced T2 to Harris Williams & Co. to manage a recapitalization process. Petra successfully exited its investment in T2 through a recapitalization transaction led by Pamlico Capital, which backed the management team to continue to grow the company.