TA ups sponsor-to-sponsor deals amid tough competition

Global growth investor TA Associates sealed two technology deals this week, both of which involved buying from another financial sponsor.

The first involved taking a minority stake in Interswitch, a Nigeria-based provider of electronic payment services, from African private equity stalwart Helios Investment Partners. Helios, which remains the majority shareholder, first invested in the company in 2011.

The second was a more straightforward secondary buyout: TA acquired ITRS, which provides software for investment banks, hedge funds, brokers and vendors from The Carlyle Group’s second European technology fund. Financial details of the transactions were not disclosed.

The two deals are noteworthy because TA Associates has a reputation for its labour-intensive outbound deal origination efforts, endeavouring to create relationships with management teams before they have even thought about external investment.

Buying from financial sponsors, which would seem to be the antithesis of this, has become an increasingly common format for TA, according to Naveen Wadhera, the London-based managing director who co-heads the firm’s European technology group.

“It has been a more active area for us over the last couple of years,” he told Private Equity International. “We used to very proudly say that we would only buy companies from founders, but this has changed.”

One reason for this, said Wadhera, is that “investors are getting to the assets earlier in their lives,” which means the firm has become more open-minded about who it buys from. “Buying a quality asset from an existing investor gives us some extra confidence that it has the platform in place for future growth.”

Private equity investment in technology is becoming increasingly competitive. Several multi-strategy firms, such as KKR, EQT and Carlyle, have built teams and raised capital specifically to invest in the sector, while tech specialists including Vista Equity Partners and Thoma Bravo are raising larger pools of capital.

Investing has therefore become challenging. “We have to meet a lot of people and touch a lot of situations to get deals done, but all the while not compromising on quality,” said Wadhera.

“If you took a five- to 10-year view, prices are trending upwards,” he continued, adding “we try to pay a discount to where the world is trading, because we are growth investors [and] are not generating a return through multiple arbitrage.”

Wadhera declined to comment on the prices paid for either of the firm’s most recent tech deals.

TA’s recent investments are understood to have been made from its 12th fund, for which it raised $5.3 billion in 2015, according PEI data. TA declined to comment on which fund was currently being invested.