Private equity giant KKR will return 3.2x on its investment in Nordic software company Visma after agreeing to sell its stake in a deal that values the business at NKr45 billion ($5.3 billion; €4.7 billion).
The transaction will deliver the multiple for investors in the $6.1 billion KKR European Fund III, a source familiar with the matter told Private Equity International.
The acquisition is led by shareholder HgCapital, which is joined by Singapore sovereign wealth fund GIC, UK-headquartered private equity house Montagu and ICG. Cinven, also a shareholder, is selling 40 percent of its stake but will retain 17.1 percent.
KKR initially acquired 80 percent of Visma in 2010 at an enterprise value of NKr11 billion, equivalent to 12x EBITDA, according to a source with knowledge of the transaction. Since then, revenues have grown from NKr2.8 billion in 2010 to NKr7.9 billion in 2016, and EBITDA margins from 19 percent to 25 percent.
Visma has also completed more than 100 add-on acquisitions for an aggregate enterprise value of around NKr8 billion. The majority of the upside for KKR came from multiple expansion, with the exit enterprise value equating to around 22x EBITDA for the last 12 months, the source said.
HgCapital’s relationship with Visma predates KKR’s; the firm initially invested £101 million ($131 million; €115 million) in the business in 2006 through the £958 million HgCapital 5, completing a public-to-private from the Oslo stock exchange valuing the business at £382 million.
The HgCapital 5 stake was sold in two tranches – firstly to KKR in 2010, and again in 2014, when HgCapital reinvested in the business through the £2 billion HgCapital 7 with Cinven, when KKR also sold down its stake. At that point, each of the three parties held 31.1 percent of the company.
HgCapital’s initial transaction delivered a return of 5.2x invested capital and an IRR of 33 percent to investors, partner Nic Humphries told PEI.
In this new transaction, HgCapital will invest a £238 million to bring its shareholding to 41 percent. GIC will hold around 14 percent, and Montagu and ICG will each hold 9-10 percent. Collectively HgCapital, GIC, Montagu and ICG are investing around £1.4 billion, the former said.
This transaction values HgCapital’s 2014 investment in Visma at 2.4x original cost and around 36 percent gross internal rate of return in Norwegian kroner, the firm said.
The heady price paid by the consortium comes despite research earlier this year showing that private equity firms are paying multiples eight times lower than trade buyers for technology businesses, as reported by PEI.
EMEA-based private equity firms paid 12.7x earnings on average for information technology businesses, according to S&P Global Market Intelligence, compared with the average of 20.6x for all buyers.
HgCapital’s Humphries told PEI that on a run-rate basis, the Visma entry multiple equates to around 18x EBITDA which, although high, is “a top-end price for a top-end business”.
“There’s always a risk that multiples will compress, but we’ve backed about 12 businesses in the same sector as Visma over the last 15 years, and we’ve never yet sold a business for lower than we bought it for in terms of multiple,” Humphries said.
“The business is increasingly cloud and software-as-a-service based. We think those trends will accelerate growth, and therefore mean the multiple looks pretty reasonable in due course.”
Private equity firms have invested more than $19 billion in European technology companies through 125 transactions so far this year, according to data from Dealogic.
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