The recent purchase of Riverbed Technology LLC reflects a burgeoning niche for middle-market technology turnaround investor Vector Capital Management LP: buying companies from lenders who converted debt to equity through reorganizations.

Information technology provider Riverbed, which counts Fortune 500 companies as clients, restructured through a 2021 Chapter 11 case, with creditor Apollo Global Management Inc. (APO) leading a recapitalization. The company is the fourth lender-backed outfit that Vector has backed in recent years and won’t be the last.

“We’ve created a unique playbook to offer support and solutions for lender-owned technology businesses to drive a creative solution, which positions us well as we prepare to enter into a potential downturn,” Vector’s Andy Fishman told The Deal.

While take privates and deals with VC-backed companies have long been Vector’s domain, Fishman said the firm is striking more deals with companies that have reorganized.

“I believe we’ve done just as many, if not more, middle-market technology deals buying directly from the lender community than anybody,” he said.

Riverbed’s Ecosystem

Riverbed develops technology that helps large companies with complicated infrastructure monitor and improve performance of their networks. Vector acquired the company from lenders for an undisclosed sum in May.

The San Francisco company does not disclose finances. However, Moody’s Investors Service Inc. reported that Riverbed’s sales came to about $535 million for the 12 months ended Sept. 30.

“Riverbed is a spot-on Vector transformative investment,” Fishman said.

“It was a technology business that had gone through a bankruptcy,” he said. “It was owned by a prior sponsor and taken over by the lender community.”

Apollo is providing some of Riverbed’s debt. It’s the second time the firms have worked together. Apollo was also a lender to Aspect Software Inc., which Vector Capital acquired and sold.

While Riverbed’s lenders support the transaction and are providing a new credit facility, the software company was on shaking ground recently. Moody’s downgraded Riverbed’s debt from Caa1 to Caa3 on April 27 — a little more than a month before Vector announced its investment. Moody’s attributed the downgrade to “high leverage, weak cash flow and challenges the company to reverse revenue declines” and cited “liquidity shortfalls and the very high likelihood of default.”

The company fits Vector’s turnaround theme. “Companies don’t need to be profitable to start, but early on in our investment they are usually breakeven to very profitable,” Fishman said.

The San Francisco company had an eventful run-up to its bankruptcy.

Elliott Management LP targeted Riverbed in late 2013 and offered to buy the company the following year. The company sold to Thoma Bravo LLC and Teachers’ Private Capital, the investing arm of the Ontario Teachers’ Pension Plan, for $3.6 billion in 2015.

Riverbed landed in bankruptcy in 2021, citing changes in networking, fallout from the Covid-19 lockdowns and the cost of servicing debt.