Nutanix to hand Bain Capital $1.7B amid continued growth

Bain Capital is to receive an $817 million investment payback from Nutanix, as well as almost 17 million shares worth $900 million.

Update: Rajiv Ramaswami quote counters Chris Evans’ view that the Bain payment may restrict Nutanix’ ability to invest in its business. 24 June 2024.

Nutanix went public back in 2016. In September 2020, it arranged a $750 million investment from Bain Capital Private Equity’s BCPW Nucleon unit via a 2.5 percent convertible senior notes deal due in 2026. These notes are a form of debt security that can be converted into cash and equity (shares) at a later date.

Dheeraj Pandey, Nutanix co-founder, chairman, and CEO at the time, said: “Bain Capital Private Equity has deep technology investing experience and a strong track record of helping companies scale. Bain Capital Private Equity’s investment represents a strong vote of confidence in our position as a leader in the hybrid cloud infrastructure (HCI) market and our profound culture of customer delight.”

Pandey retired shortly thereafter.

The deal is governed by an indenture which specifies that Nutanix is required to settle the conversion by paying $817.6 million in cash and delivering approximately 16.9 million shares of Class A common stock. Nutanix plans to use its existing balance sheet liquidity to settle the cash portion of the conversion and should deliver the shares in late July 2024 following regulatory approval. 

When Nutanix took in the Bain investment, its revenues were $314 million to $328 million a quarter and it was making $185 million to $241 million losses per quarter. It finally became profitable in February this year and, as of its latest quarter end in June, had $1.651 billion in cash, cash equivalents, and short-term investments.

Rajiv Ramaswami, Nutanix
Rajiv Ramaswami

Nutanix CEO and president Rajiv Ramaswami said: “We appreciate the support, guidance, and counsel that Bain has provided us over the past several years and are pleased with their sustained endorsement.”

Analyst Chris Evans pointed out: “Effectively, for the issuing of $750 million, the company ‘pays back’ $1.73 billion (pays back in quotes as some of this is share issuance).

“It will be interesting to see the effect on the share price, but also on Nutanix’s ability to compete with the likes of VMware, when a big chunk of cash comes out of the company.

“Possibly the worst time for this to happen as it lets VMware off the hook somewhat. Nutanix might have to scale back sales and marketing spend, and maybe R&D, as these are currently the areas where the most money goes out the door. As reported in the third quarter 2024, the company only has about $1.6 billion in cash and short-term investments, so this payout will be quite a blow.”

However, Ramswami said: “Paying Bain the cash portion of the settlement of their recent note conversion does not mean we have to scale back investments in our business. We fund our investments in sales and marketing and R&D from the gross profit generated by our business, not from cash on our balance sheet. In the first nine months of our fiscal 2024, after covering all of our planned expenses, including sales & marketing and R&D, we generated over $370 million of free cash flow.”

Max de Groen and David Humphrey, partners at Bain Capital, will continue to serve as members of Nutanix’s Board of Directors. Humphrey said: “We have been really pleased with our partnership with Nutanix over the last several years, particularly during its transformation from a pioneer of hyperconverged infrastructure into a much broader hybrid multi-cloud platform provider. We continue to believe in the future of Nutanix. Their innovative technology, market position and operational discipline are enviable.”

De Groen said Bain had no plans to sell its Nutanix shares. The share price is up 3.63 percent to $54.01 over the past five days.