5 Surprising Truths About the Private Equity Firms Running Your Town's Software

When a property tax bill arrives, it represents a fundamental transaction of civic life. You pay a calculated amount to fund the schools, roads, and services that make your community function. But have you ever asked who writes the software that performs that critical calculation? Who builds the systems that manage land records and ensure the entire process runs smoothly?

The answer, surprisingly, is often a massive, multi-billion dollar private equity (PE) firm headquartered hundreds of miles away. While city council meetings debate budgets in public, the financial architecture of the town itself is being quietly reshaped in the private boardrooms of some of Wall Street’s biggest players. An unseen force is shaping our public infrastructure as PE firms acquire and operate the niche "GovTech" companies providing essential software to thousands of governments. This article explores five complex and often counter-intuitive truths about this quiet but powerful industry.

1. Your Local Government's Technology is a Private Equity Playground

While you may think of private equity targeting flashy tech startups or legacy retailers, some of the industry’s biggest players have turned the quiet, unassuming world of government technology into their personal playground. Private equity giants like Thoma Bravo and Vista Equity Partners, which collectively manage hundreds of billions of dollars, have aggressively acquired the companies that provide the digital backbone for public services.

A prime example is Manatron, a company owned by Thoma Bravo, which serves over 1,500 government customers and manages data for approximately 40 million land parcels. This consolidation trend is accelerating, as seen in the recent acquisition of Axiomatic, a leading provider of state property tax oversight software, by Catalis—a GovTech company backed by PE firms PSG and TPG.

For investors, the appeal is a steady, recession-resistant stream of cash flow from government contracts. But this is more than just a safe investment. That predictable revenue is the fuel required to service the massive levels of debt used in these acquisitions (more on that later), all while operating in a low-profile sector far from the scrutiny of public markets.

2. The "Efficiency Paradox": When PE's Strengths Become a Weakness

The very quality private equity is famous for—ruthless efficiency—often becomes a critical weakness when applied to the software that runs our lives. Many PE-owned companies fall into what consulting firm AlixPartners calls the "R&D 'efficiency paradox'," treating software research and development like a factory, expecting a predictable relationship between investment in and features out.

This factory mindset clashes with the creative, unpredictable nature of innovation. AlixPartners warns that this approach can lead to "compromised product-market fit, reduced innovation, and lack of adaptability." An analysis by EY-Parthenon of 180 recent software company deals found that approximately 30% of companies did not follow leading practices for product roadmap governance, misaligning their R&D investment from their commercial strategy. This creates a fundamental tension: the PE model’s drive for efficiency can stifle the very creativity required to build great, reliable software.

3. Vendor Disputes Can Escalate into Full-Blown Lawsuits

When the relationship between a government and its PE-owned software vendor sours, the fallout can be severe. A sample court filing from a municipality like Franklin, Wisconsin, against a vendor called Accurate Appraisal, LLC, illustrates the high-stakes risks involved.

The city alleged a cascade of failures, claiming the vendor ignored industry standards for data quality, recycled "old or unverified data" instead of performing required field inspections, and failed to use the contractually-mandated valuation methods—effectively misrepresenting the quality of its work from the start. This is the "efficiency paradox" in action: the pressure to streamline operations can lead vendors to cut corners on mission-critical tasks like field inspections, ultimately triggering the very failures alleged in the filing. This illustrates the risks municipalities face when they outsource a function as critical as property assessment to a private, profit-driven vendor.

4. PE Firms Have Access to Financial Levers Most Businesses Don't

It’s not just their management style that’s different; private equity firms operate with a financial toolkit most businesses can only dream of, built on one thing: massive amounts of debt. While a typical middle-market business owner might secure a loan for one or two times their annual earnings, private equity firms "can get three, four, five, six, seven, eight times EBIT" (Earnings Before Interest and Taxes) in debt, according to investment bank POTOMAC M&A.

This means the software running your town's 911 dispatch or water billing system may be saddled with more debt than the company could ever have taken on by itself, creating immense pressure to cut costs or raise prices for its government clients. This massive leverage is used to "juice returns" by amplifying the gains on their equity investment. They are fundamentally "cash flow buyers," acquiring companies that can generate enough cash to service the enormous debt loaded onto them. As the CFA Institute bluntly puts it, while "debt and equity are the two engines of the buyout craft... the debt engine provides a lot more thrust."

5. Playing Both Sides: The Hidden Conflicts of Interest

In the high-stakes world of private equity, the biggest players have discovered how to rig the game: they play both sides. The largest alternative asset managers often operate across a company's entire capital structure, acting as "equity sponsors, unitranche providers, senior and/or mezzanine lenders, and bondholders." In simple terms, this means they can be the owner, the primary all-in-one lender, and hold various other forms of debt simultaneously.

This dual role creates a powerful conflict of interest, giving managers "access to confidential information without falling foul of the sorts of insider trading rules that hamper public markets," according to the CFA Institute. By positioning themselves as both owner and lender, these firms can play a game where they always win. If the company succeeds, their equity pays off. If it falters, their debt gets priority, and they can extract millions in fees by keeping "zombie" companies alive through constant refinancing so that they can continue "charging fees of all kinds." This ensures that even in a failing investment, the house rarely loses.

A Necessary Partner or a Risky Gamble?

The private equity model, built on debt-fueled acquisitions and aggressive efficiency, is fundamentally misaligned with the slow, deliberate, and risk-averse nature of public service. While PE brings capital and discipline to a sector often in need of technological upgrades, it also introduces a high-stakes financial game where the stability of our civic infrastructure becomes a variable in the pursuit of outsized returns.

The drive for efficiency stifles innovation, the immense financial leverage magnifies risk, and the opaque conflicts of interest blur the lines between owner and creditor. As private equity becomes more deeply embedded in the systems that run our towns, the critical question for citizens and governments becomes: How can we ensure that the relentless pursuit of profit aligns with the public good?