TPG Capital combines 3 vendors to form Digital.ai

Private equity firm TPG Capital this week combined three of its assets to form a new technology company, dubbed Digital.ai.

TPG Capital announced Thursday that it had acquired Arxan Technologies, an application security firm based in San Francisco. The private equity firm combined Arxan with two other recent acquisitions -- CollabNet VersionOne, an Agile planning software maker, and XebiaLabs, a continuous delivery software vendor -- to form Digital.ai. CollabNet VersionOne and XebiaLabs were fused under TPG Capital earlier this year. Terms of the Arxan deal were not disclosed.

Operating under a platform that enables enterprise DevOps, Digital.ai looks to help companies transition the way they think about technology and its purpose, according to Digital.ai COO Mark Lorion, formerly Arxan Technologies' COO. Digital.ai said it is the "first technology company to provide intelligent value stream management, application security and software delivery in a unified platform."

"TPG is not just buying and managing portfolios -- they actually want to build out in a specific space," Digital.ai CEO Ashok Reddy said. "Last year, they started looking at digital transformation and the fact that more and more companies are trying to become digital, but it's hard to manage all the way from hardware to agility and DevOps. There wasn't a platform."

Each of the three companies was chosen for their unique contribution to that platform.

"We started with CollabNet VersionOne on the front-end part. Then you have to deliver, automate and orchestrate the code, so XebiaLabs was the second acquisition," Reddy said. "Once you have code, how do you secure it? A key aspect was how Arxan Technologies came in and focused on hardening these applications because once they are deployed in the wild there can be jailbroken applications or zero-trust environments. So from a planning perspective, you had the ops, now you have the sec, so now you have DevSecOps connected from agility all the way to deployment."

Private equity firms combining companies to form new entities is becoming more common, said Eric Parizo, senior analyst at Omdia.

"At one point for private equity, it was solely about taking advantage of their expertise in cyber and acquiring multiple companies that provided the potential for increased value. Now some key PE [private equity] houses in cyber have knowledge and experience to understand how to build a better long-term business by combining capabilities of multiple assets," Parizo said in an email. "I believe we've seen that with Belden's assets combining with Tripwire and more recently with Broadcom buying Symantec and merging its CA [Technologies] identity technology into the Symantec unit."

Though it is becoming more common, this merger has a unique focus, Lorion said.

"When companies are acquired, they are operating at arm's length or as a division and you don't really get the benefit and synergy of people coming together," Lorion said. "Our view is to pull together and offer a platform ... to the enterprise that's going to leverage capabilities of different products we have, but we are going to piece them together in a way that solves higher-level problems for enterprises. We'll deliver more value than an organization would get if they were simply buying these pieces on their own, so we have this platform mentality and that is unique in the market."

There is a fragmentation in that market, according to Reddy.

"People were using different toolchains and there was no linkage to the business, so the way we looked at it was more from a concept to cash. Every business wants to be a digital business and they have ideas and strategies, but how do they go about creating that concept to cash?" Reddy said. "We are providing something end to end, but at the same time we look at this as something complementary to the many things people already have."

Enterprises will continue to put more focus on the launch of digital transformation projects, Lorion said.

"Sadly, I think the [COVID-19] pandemic will speed up the typical enterprises' need and desire to rethink the way they enable their employees, their partners and their customers, so software will be a huge component," Lorion said. "If the enterprise has the trust that their software is being used by the right people, in the right way, they'll be more inclined to innovate on top of it and that's where you'll really see transformative projects happening."