Hg makes 79% IRR on software exit to H&F(3)

London-based firm HgCapital has sold two software companies to US buyout firm Hellman & Friedman for an enterprise value of £500 million. The price is thought to represent a market multiple of four times.

HgCapital, a European mid-market firm, has sold a combined software business to Hellman & Friedman for an enterprise value of £500 million (€737 million, $984 million).

Hg originally bought IRIS Software, a UK provider of software to the accountancy sector, in July 2004 for an enterprise value of £100 million. It bought Computer Software Group, a UK provider of software to law firms and not-for-profit organisations, in April 2007 for an enterprise value of £102 million.

A rival buyout player said: “The price that Hellman & Friedman has paid is four times the size of the market that IRIS supplies. This brings a new meaning to the term ‘market multiple’.” Hellman & Friedman declined to comment on the market multiple but confirmed that it paid around twelve times pro forma earnings before interest, tax, depreciation and amortisation.

Hg has netted a profit of £239 million for its investors from the exit, which has generated an internal rate of return of 79 percent and a 2.9 times return on the original investment – according to a banking source.

Hellman & Friedman will merge the two businesses which will become known as Iris Software Group. The firm has bought a majority stake in the two companies while Hg will keep a minority stake. Martin Leuw, chief executive of IRIS Software, one of the two businesses, will become chief executive of the merged business.

Nic Humphries, partner at HgCapital, told PEO: “Hellman & Friedman competed with about 12 bidders in the auction process – both rival private equity firms and trade bidders. Hellman & Friedman was triumphant because it made a very attractive offer and has considerable experience in the software sector.”

Under Hg’s ownership, IRIS’ sales have increased from £20 million to £45 million and its profits from £7.6 million to £18.6 million.

HgCapital has completed five buyouts and six bolt-on acquisitions in the software sector since 2003. Its other investments in the software sector include Norwegian accountancy software business Visma, which it bought in 2006, and German software company Addison, which it bought in 2005. The firm has €2.7 billion under management and offices in London, Munich and Amsterdam.

Founded in 1984, Hellman & Friedman has raised about $16 billion, and has offices in London, New York and San Francisco. It is currently investing its sixth fund with $8.4 billion of committed capital. Its other investments in the software sector include Kronos, which it bought in 2007 for $1.8 billion, and digital marketing company DoubleClick, which it recently sold to Google for $3.1 billion.