Club deals: paying it forward

Advent International and Bain Capital have teamed up for the eighth time. Is the club deal back?

Advent International and Bain Capital cemented one of the industry’s longest-standing relationships when they teamed up to buy German payments group Concardis in January. The deal was the fourth time the two had acquired a payments processing business together and the eighth time overall they had combined on a deal.

In payments, the relationship between the firms goes back to 2010. Advent’s carve-out of French company Monext from Experian was a success, recalls James Brocklebank, a managing partner, and when it exited that business in late 2009, his firm renewed its focus on the sector in Europe. The timing was fortuitous. A few months later RBS-owned Worldpay, Europe’s largest processor, came on the block after a European Commission-mandated asset sale.

“Worldpay required a complete transformation, the scale of which was enormous. It wasn’t a question of LP co-investment – we needed the bench strength of another firm to assist with the transformation,” says Brocklebank.

The amount of work required – and the knowledge they achieved from completing the transaction – left the firms well-placed to tackle future deals, according to Jeff Paduch, managing director at Advent.

“We have worked together with the Bain Capital team so closely on payments for so long, and learnt so much together and from each other, that now it would be unthinkable to do something separately [in payments] in Europe as we are so aligned as a team,” says Paduch.

After Worldpay the pair bought Danish payment company Nets for $3.1 billion, then in summer 2015 the firms acquired Italian group ICBPI for €2.2 billion. Finally, the turn of the year saw the two strike that Concardis deal.

The acquisition confirmed another trend: club deals are on their way back. While still well below their pre-crisis peak, the $91 billion invested in club deals in 2016 was the most since 2007. For some LPs, this is not a welcome move.

“GPs know LPs don’t like them – they will do anything else if they can. So for me it is a sign of too much money, not enough deals,” says one European fund of funds manager. “It is not just the portfolio overlap, club deals raise governance issues. Firms have different fund lives and different interests regarding hold periods. One might be investing in the deal out of a great fund, for the other it could be a make or break deal. It’s full of conflicts,” says the LP.

But as another investor says: “If it goes well, no one will complain.” Which for Bain and Advent, it is, so far. Worldpay made a return of more than 6x (according to a source) and the Nets IPO in September 2016 valued it at $4.5 billion. Deals in other sectors, such as that for e-learning company Skillsoft, sold to Charterhouse for $2 billion after a $1.1 billion acquisition, have paid off.

And in payments, the two firms have changed a whole sector. “Worldpay is now a key strategic partner for CEOs of big and small retail businesses, not just a supplier. The evolution in the sector has been driven by Worldpay’s strategy to drive innovation and provide more value-added services,” says Luca Bassi, managing director at Bain Capital Private Equity, who, with Robin Marshall, led for Bain on all the payments deals.