Hg Saturn Fund and Intermediate Capital Group (ICG) have partnered to make an investment in IRIS, a provider of software and services to the UK accountancy, education and business market, representing the largest UK and third largest European private equity software buyout ever.
The terms of the transaction, which is subject to regulatory approvals, have not been disclosed.
Over 21,000 accountancy practices and more than 80,000 small and mid-sized businesses, corporates, and payroll bureaus rely on IRIS to run their business every day.
IRIS exhibits a number of Hg’s ‘sweet spot’ business model criteria, including a strong product offering, a loyal customer base, superior software metrics with high degrees of recurring revenue and cash flow conversion and a proven M&A platform with significant cross-sell opportunities. IRIS has a strong performance track record, demonstrating consistent revenue growth over the last 17 years, driven by deep domain knowledge, as well as a good breadth and depth of functionality across its product portfolio.
Hg will invest alongside ICG, with both parties having joint partnership in IRIS. Hg’s investment will come from the Hg Saturn Fund, which had its first close in early 2018. The Fund focuses on software businesses with Enterprise Values of more than GBP1 billion.
The Hg6 Fund has sold 100 per cent of its interest in the business to Hg Saturn and ICG. The sale follows a competitive auction process, launched in March 2018. ICG submitted a compelling bid for participating in this investment, acknowledging Hg’s strong relationship, in-depth knowledge and experience with IRIS over the last 14 years since Hg first acquired the business in 2004.
The realisation of IRIS will deliver an overall return to Hg6 clients of 4.2-times original invested cost and a gross IRR of 26 per cent. Hg6 originally invested in IRIS in December 2011 and over the course of the Fund’s investment, the business has experienced strong revenue, EBITDA and cash flow growth, across market cycles. At an exit valuation of GBP1.3 billion, the business has more than trebled in size over the last six years. This is the 18th exit from the Hg6 Fund to date, and following completion of the sale the Fund will have returned circa 207 per cent of invested cost to Hg6 investors.
Nic Humphries, Senior Partner and Head of the Saturn fund at Hg, says: “Hg first invested in the tax and regulatory compliance software market in 2004 via IRIS. Since then we have invested in 11 platform companies and more than 200 acquisitions – we currently own businesses worth over USD10 billion in this sector including IRIS, Visma and Sovos, all growing faster than their peers. This clustered investment strategy gives us unique insights and experience which benefit the companies we back, their customers and their employees. We are delighted to back Kevin Dady and his team again through our Hg Saturn Fund.”
Benoit Durteste, CIO of ICG, says: “ICG is delighted to invest in IRIS and once again support Hg. We have worked together with Hg successfully on software deals including Visma and Team System, and they have a proven track record in this sector. In our opinion IRIS is a first class business with a great track record led by a talented management team, focused on regulatory and compliance driven software solutions. IRIS is well positioned for further organic and inorganic growth. It is a great way for us to start our new ICG European Fund VII.”
Dady, CEO of IRIS, says: “The renewed Hg investment, alongside ICG, is recognition of continued success. We’ve developed best-in-class products across the businesses, continuously improved customer service and extended our product portfolios through strategic acquisitions to either enter new or grow existing markets. We look forward to continuing our strong working relationship with Hg and also look forward to working with ICG; supported by a solid long-term strategy, an exceptional leadership team and talented employees as we will continue our mission – to help businesses stay one-step-ahead of their competition.”
Hg Saturn was advised on this transaction by DC Advisory, Linklaters and OC&C. IRIS was advised by Arma Partners, Skadden, Deloitte and Bain & Co.
