Cinven joins KKR and Hg in €2.5bn Visma

Hg is exiting Visma from one fund, netting a 5.2x return – and then re-investing from another, alongside Cinven.

Kohlberg Kravis Roberts, HgCapital and Cinven are joining forces on the Visma Group, a Nordic software company, in a deal that values the business at NOK 21 billion (€2.5 billion, $3.5 billion).

All three groups will own a 31.3 percent stake in the business following the deal, according to a statement. KKR, which has owned 76 percent of Visma since 2010, is selling down its stake, allowing Cinven to come in as a new investor and Hg to increase its stake from the 17.7 percent it previously owned.

Visma provides enterprise resource planning (ERP) software and services including accounting, tax and payroll applications and services to over 340,000 customers, retailers and local authorities across the Nordic region.

It has been private equity-owned since 2006, when Hg bought the company in a NOK4.3 billion (€520 million, $720 million) public-to-private transaction. In September 2010, Hg sold part of its stake to KKR for NOK11.0 billion (€1.3 billion, $1.8 billion), while retaining a 17.7 percent stake. UK-based Montagu Private Equity also bought a significant minority stake alongside KKR and Hg at the time, using capital from Montagu Private Equity III, a €2.26 billion 2005-vintage. Montagu, which declined to comment, has now fully exited its minority stake, which has yielded the firm a 2x return, according to a source close to the matter.

KKR’s partial exit has realised a 1.5x return for the firm, according to a source close to the matter, not including the value of its remaining stake. Hendrik Kraft, head of KKR's European technology and communications industry's team, declined to comment on returns, but said: “We felt it was certainly much too soon to sell out completely, but [it was] an opportunity to take advantage of the great interest in the company and the way software companies are valued now.”

Hg originally invested in Visma from its fifth fund, HgCapital 5. As part of this transaction, it will sell this stake – netting the fund a 5.2x return, with an IRR of 34 percent – and then buy a larger stake using HgCapital 7, the £2 billion (€2.4 billion; $3.3 billion) fund it closed last year.

Hg will invest approximately £405 million, managing partner Nic Humphries told Private Equity International, with Cinven investing the same amount. The transaction included approximately £800 million of senior debt. “The business has grown very well between 2010 and 2014 – we and KKR wanted to [stay] in the business for longer,” he said.

The remaining 6 percent of the business will be owned by Visma’s management and several Nordic institutional co-investors, including Ilmarinen, a Finnish pension insurer – an investor in previous Hg funds, according to PEI’s Research & Analytics division – and Storebrand, a Norwegian life insurance and pension savings company.

The deal followed an auction process run by ABG Sundal Collier, a Nordic investment bank, and Morgan Stanley. It attracted interest from other European and global private equity groups, including Silverlake, according to one market source. Hg declined to comment on the auction.

Visma has grown substantially under the ownership of Hg and KKR. More than 75 bolt-on acquisitions were completed, while the company’s EBITDA has increased from NOK 305 million (€37 million, $51 million) in 2006 to NOK 1.3 billion (€160 million, $220 million) in 2013 – a compound annual growth rate of 23 percent. Staff numbers more than doubled in the same period, from 2,512 to 5,648.

Hg needed to structure the deal this way because Fund V is now eight years old, Humphries said. “If we wanted to hold it for another four to five years, it would have been too long; so we agreed with the LPs in Fund V that they wanted to cash out entirely after eight years. Because we like the business and still can see long term growth potential, it was a sensible investment for us to consider from our new fund.”

Hg’s Fund 5 exit of Visma is the seventh full realisation from this investment vehicle, a £958.3 million 2006-vintage. Following this transaction, the fund will have returned an overall realised multiple of 2.8x original cost and generated a gross IRR of approximately 27 percent. Nearly 160 percent of invested capital will also have been returned to the Fund’s clients, Hg said in a statement.

KKR will also be keen to return capital to its investors as it is currently in market attempting to raise €3 billion for its fourth European fund, which has a €3.5 billion hard-cap. It made the original Visma investment using its European Fund III, a €6.79 billion, 2008-vintage.

For Cinven, the investment marks the eight deal from Cinven’s Fifth Fund, which closed on €5.3 billion last year.

The deal remains subject to regulatory approval.