HgCapital books 2.3x on P&I sale

This is the first exit from HgCapital 7; the firm is currently in discussions about raising its eighth fund.

HgCapital has agreed to sell a majority stake in German-headquartered payroll and strategic HR software provider Personal & Informatik to global buyout house Permira, according to statements from the firm.

The sale will generate an internal rate of return of 36 percent and a 2.3x investment multiple for HgCapital, which has retained a minority position of €70 million.

This is the first exit – and also the first investment – from HgCapital 7, which closed on its £2 billion (€2.3 billion; $2.6 billion) hard-cap in April 2013. Fund VII has returned approximately 25 percent of invested cost from this exit alone, with further liquidity expected to be generated over the coming months through a number of planned refinancings, the firm said.

HgCapital acquired 91.85 percent of P&I in December 2013 from The Carlyle Group, as reported by Private Equity International.

P&I supplies integrated HR software solutions for payroll, strategic HR and analytics. The company serves more than 15,000 customers, from small and medium-sized private companies to public sector organisations of all sizes, predominantly across Germany, Switzerland and Austria, as well as in 10 other European countries.

Hg tracked P&I for a decade prior to investing, which enabled the firm to build a strong relationship with the company’s management team and conduct thorough due diligence, it said.

Hg said P&I performed ahead of investment case throughout its ownership, delivering double-digit EBITDA growth, due to constant investment into innovation and expansion of product and cloud offering, driving cross-sell of new HR technology including human capital management, recruiting and analytics solutions to its existing customer base, as well as strong wins of new customers.

Hg refinanced the business in January 2016, returning around 0.6 times original cost to Fund VII.

In its statement, Permira, which is acquiring its stake through the €5.3 billion Permira V, said it would support P&I’s management “as it capitalizes on the huge growth potential in the DACH region”, through further penetration of its core customer base and “drawing on numerous consolidation opportunities in its home market”.

“With the acquisition of P&I, the Permira funds strengthen their position as one of the largest software investors in Europe and particularly in the DACH region,” said Jörg Rockenhäuser, head of the DACH region at Permira.

On Monday Hg also announced the carve-out of Norway-based outsourced accounting services provider Visma BPO. The company is currently owned by Nordic accountancy software company Visma, which Hg owns alongside KKR, Cinven and its management team.

Hg acquired Visma in 2006 in a NKr4.3 billion (€465 million; $519 million) public-to-private transaction. In September 2010 the firm sold part of its stake to KKR for NKr11 billion (€1.2 billion; $1.3 billion), retaining a 17.7 percent stake. In 2014 Hg, KKR and Cinven teamed up on the company in a NKr21 billion (€2.3 billion; $2.5 billion) deal which saw all three groups take a 31.3 percent stake.

Hg, which originally invested in Visma from its fifth fund, HgCapital 5, sold that stake, netting the fund a 5.2x return, with an IRR of 34 percent, and bought its larger slice using HgCapital 7, as reported by PEI.

The carve-out of the BPO business was part of an organised competitive sales process following Visma’s strategic decision to focus increasingly on its software-as-a-service offerings, Hg said.

In its interim results for the six months ended 30 June HgCapital Trust, a listed entity that invests only in HgCapital’s funds, reported revenue and EBITDA growth of 12 percent and 22 percent respectively across the top 20 buyout investments in the last 12 months.

In the year to date to 31 August, HgCapital trust’s NAV per share was £15.63, up from £14.20 in December last year, reflecting uplifts to book value on exits and further currency gains. The share price rose to £12.83, a 19 percent year-to-date total return.

In the update, chairman Roger Mountford said HgCapital 7 is more than 70 percent drawn, and that the board and Hg have “been in dialogue” to discuss the commitment the trust will invest alongside LPs in the next fund.

“The Board has indicated to the Manager an appetite to commit some £350 million to its HgCapital 8 fund when fundraising begins,” Mountford said.