Inflexion continues to ride realisation wave with 7.7x exit

The UK firm has agreed to sell software company Reward Gateway to US-based Great Hill, its ninth exit in the last 18 months

UK-based Inflexion Private Equity has agreed to sell software company Reward Gateway to Boston-headquartered Great Hill Partners in a deal valuing the business at £140 million (€199 million; $219 million), according to statements from Inflexion and Great Hill.

The sale – Inflexion’s ninth in the last 18 months – will generate a return of 7.7x and an internal rate of return of 59 percent for the mid-market firm.

“It’s been a very good market for strong realisations,” Inflexion managing partner Simon Turner told Private Equity International. “We’ve been lucky in having a swathe of businesses that have been at a state where they’re ready to go and attractive, and we’ve been taking advantage of that.”

Reward Gateway provides “enterprise employee engagement software”, powering employee benefits, reward and recognition, total reward solutions, employee communications and engagement systems. Founded in 2006 by Glenn Elliott – who will remain as leader of the management team – Reward Gateway’s clients include IBM, American Express, Diageo, Heineken, Bloomberg, McDonalds, Unilever and Yahoo!

Inflexion invested in Reward Gateway in December 2010, acquiring 60 percent in a deal valuing the business at £25.5 million. The remaining 40 percent was held by management and Reward Gateway’s employees, through the company’s shared ownership scheme. Following the sale to Great Hill, management and staff will hold 45 percent.

During Inflexion’s ownership the company expanded its product offering and strengthened its international footprint, expanding its operations in Australia and moving into the US market, recording a fourfold increase in EBITDA and an increase in employees from 64 to 275.

“A big part of what we do is finding UK businesses that have got real weight in their domestic market but where we think there’s an international angle,” Turner said. “I think for the Great Hill guys, they look at it and say ‘strong business in the UK, brilliant quality of earnings, the US opportunities are proven but there’s loads more we can do as well’, so they’ll obviously take that forward.”

Following the sale Inflexion will have three portfolio companies remaining in its £165 million, 2006-vintage vehicle, and the firm is also selling businesses from its £375 million 2010-vintage buyout fund. Turner anticipates the firm’s run of exits continuing.

In June 2014 Inflexion sold IT services company FDM Group, generating a 16.2x return. The firm has also recently exited Sanne Group, which listed on the London Stock Exchange in March yielding a realised and unrealised return of 3.7x and an internal rate of return of 80 percent, and CTC Aviation, which Inflexion sold to L-3 Communications Holdings in a deal generating a 3x return, as reported by PEI.

Inflexion’s 2006-vintage fund – which “for a lot of people is a very difficult vintage” – is on-track to remain “consistent with our long-term record” of returning more than three times money overall, Turner said.

Last September Inflexion’s latest flagship fund, Inflexion Buyout Fund IV, closed on its hard-cap of £650 million, while Inflexion Partnership Capital Fund I, which makes minority investments in the UK mid-market, closed on its hard-cap of £400 million, PEI reported at the time.

The vehicles, which have made a number of investments, have “good flow”.

“It’s not as easy a market right now for buying as it is for selling, but there’s plenty of things out there if you’re willing to look hard and originate,” Turner said.