Application observability company New Relic Inc. is reportedly holding talks with the private equity firms Francisco Partners Management LP and TPG Inc. about a possible $5 billion sale.

The deal would mean that the publicly listed New Relic becomes a private entity once again, but it’s possible that the talks could still break down, the Wall Street Journal reported today. In addition, the negotiations may be complicated by the emergence of other suitors.

Shares of New Relic rose more than 11% after the Journal reported the potential deal, citing people familiar with the matter. As a result, New Relic’s market capitalization has increased to roughly $5.8 billion.

San Francisco-based New Relic is considered a leading player in the application and infrastructure observability space. It sells software that’s used to track the performance of applications, services, DevOps environments and the infrastructure they run on. New Relic is especially popular with developers, because the software gives them a way to identify problems with their apps and work out how to resolve them.

But despite its popularity, New Relic has struggled in recent years to grow as much as its shareholders would have hoped. Three years ago, the company revamped its business model by moving to a consumption-based pricing structure, and consequently suffered a big drop in active customer accounts and revenue.

Although New Relic’s management insisted the newer model would put the company in a better long-term position, it struggled to achieve its growth and revenue targets. Former Chief Executive Lew Cirne stepped down, replaced by Bill Staples (pictured).

Under Staples’ leadership, New Relic has managed to turn itself around of late, with recent quarters showing encouraging growth. But even so, rumors of a sale that first emerged last year have continued to persist, suggesting that shareholders may be looking to cash out their bets.

Holger Mueller of Constellation Research Inc. told SiliconANGLE that New Relic’s transformation to a subscription-based business model has been a somewhat rocky one. “It needs more time to reinvent itself and wants to do so without the public scrutiny of quarterly earnings calls,” he said. “At the same time, the private equity firms are playing a longer game and probably think New Relic is undervalued and will execute better as a private firm. So the deal makes sense for all parties involved.”

Whether a deal is done remains to be seen. As the Journal noted, mergers and acquisitions in the technology industry have been muted this year amid economic uncertainty. As of May 12, private equity firms had completed $73.2 billion worth of leveraged buyouts this year, down from $111.1 billion in the same period last year.

Francisco Partners and TPG are both logical suitors for New Relic, with a strong track record of buying public companies and turning them around. Francisco Partners is focused specifically on the tech industry, and notably acquired the software company Sumo Logic Inc. for around $1.7 billion in February. Meanwhile, TPG invests in both technology and healthcare firms. It has about $137 billion worth of assets under management.

The private equity firms have partnered on similar deals in the past. Back in 2021, they jointly acquired Dell Technologies Inc.’s Boomi cloud business for about $4 billion.

Image: New Relic