how to be a winner - clearwater...

wirethe

Clearwater’s TMT sector commentary Winter 2013

Deal focusReview of 2013

Private equityExit opportunities

Cloudex awardsThe cream of the crop

InterviewRivo Software

CSCExclusive interviewafter sale to Trimble

HOW TO BEA WINNER The ingredients forsuccess in the cloud

the wire | Winter 2013

2welcome

We were recently delighted to host ourinaugural Cloudex 20:20 awards, where weshowcased the very best talent in UK cloudtechnologies. Our individual winnersFourth, Acturis, Livebookings and Skyscapeare all undoubtedly names to watch in thefuture, as are all those on our shortlist.

As you can read in this issue, there are keyattributes that run through all our winners.They are pure cloud companies with no

the technology but your entire approachand model, with a continuing focus onrecurring revenue paramount.

But amid the advice there are words ofwarning. As another winner reminds us,one should never forget that end-usersdon't really care all that much about fancycloud-based technology. What they careabout is whether the technology makestheir working day easier.

legacy mindset; analytics is the bedrock oftheir businesses; and, crucially, theirsoftware is designed for very specificbusiness tasks.

The thoughts of our winners on whatmakes a successful cloud business arefascinating. As Ben Hood, CEO of overallwinner Fourth tells us, it's not just about

Most of our winners now have globalambitions, taking advantage of the factthat the UK remains very much at thefrontier of the cloud industry.

Indeed, global ambition was exactly whatconstruction modelling software providerCSC had in spades when it set out to growits business in the wake of a buyout a

decade ago; a transaction which alsohappened to be Clearwater's very first deal.

Just as we have grown since that day, so we have been delighted to assist CSC in its growth ever since, culminating in itsrecent sale to Trimble. The fact that CSCwas able to ride out the UK recession andcome back even stronger speaks volumesfor the quality of its products and people,alongside its global strategy.

We hope you enjoy this issue and if youwant to read more or get in touch, followus on Twitter at @CCFtech and visit ourblog at http://extranet.cwicf.com/blogs/techblog

Carl HoughtonPartner

The wire is published by Clearwater InternationalEditors: Jim Pendrill and Sarah FernandezDesign: www.creative-bridge.comSubscription: [email protected] part of this publication may be reproduced orused in any form without prior permission ofClearwater International

Welcome to the latest issue of Clearwater’scommentary on the TMT sector.

Welcome

“The fact that CSC was able to ride out the UK recessionspeaks volumes for the quality of its products and people,alongside its global strategy.”

3contents


4news

Contents

f

6cloudexf

10interviewf

12research

f

16dealsz

Meet the teamCarl HoughtonPartner

+44 (0)845 052 [email protected]

Emma RodgersDirector, TMT MarketIntelligence


Helen Lowe Assistant Director


Omar MahmoodManager


James HalesDeal Origination Director


Adam PhilippsohnDeal Origination



4news

This focus on R&D has been at the core ofCSC’s success since a debt-funded buyout10 years ago which saw Roberts, thensales director, take the helm.

“To be honest, at that time we had all beenwith the business so long that our gameplan was to grow it for four or five years andthen exit. What we hadn’t reckoned washow the MBO would give us all a real buzzfor the business, we really started enjoying itagain. The debt was paid off within the termand we invested heavily in R&D to make ourproducts flashier, more suitable and moreappealing to a wider reach of people.”

Such was the team’s renewed zeal that fiveyears on from the buyout the talk was ofsecuring further investment rather thanexiting, and a deal was struck with PEinvestor ISIS. “Our attitude changed. Whenthe time came to look at our options againthe recession was beginning to bite, althoughwe were still performing well, so we thoughtit would be a good time to take some cashout of the business while introducing a newinvestor to further support our productdevelopment and geographic expansion.”

The company’s can-do attitude, andparticularly its move into the US, wouldultimately prove key to the later sale of thebusiness. As its US operations grew, onecompany that took particular notice wasTrimble, a multi-billion dollar softwareplayer best known for its GPS technology.

Roberts says Trimble had been continuouslyexpanding its presence in the constructionspace and the companies began workingtogether, especially after Trimble’s purchaseof the Finnish Tekla Corporation in 2011.

As CSC began integrating its own softwarewith Tekla’s, so the genesis of a sale toTrimble emerged. Adds Roberts: “Thepossibility of a trade sale to a US player was

A global vision helped construction software specialist CSCthrough the UK recession, leading to its subsequent sale toTrimble, a leader in positioning technology.

Game plan

“What we hadn’t reckoned was how the MBO would actually give us all a real buzz for the business,we really started enjoying it again.”

The result today is a software businessspanning the globe with offices inSingapore, Malaysia, Australia, South Africa,India and the US.

As he continues: “I wouldn’t say our globalexpansion saved us from the UK recession,but when we were seeing big constructionplayers shedding hundreds of jobs onvirtually a weekly basis it was quite a scaryplace to be. Yes, some of our clients wentout of business but the majority stuck withus and were very loyal.”

CSC provides software for all aspects ofstructural engineering including technicalcalculations and analysis, structural design,3D modelling, drawing and informationmanagement.

Adds Roberts: “Our products help designbuildings, whether multi-storey offices,retail centres, schools or hospitals. It is allvery automated and we are very BIM(Building Information Modelling) friendly.Our clients also know that we continueinvesting in our products.”

CSC Managing Director Mark Roberts says it was the quality of both theproducts and people that got his companythrough the recession. That, and theforesight a few years before the crash tobroaden its base.

“Although we had built up a reasonableposition in the UK construction market, weknew that if we caught a cold then therecould be issues so we went looking for newglobal markets.”

The fact that bigger players were sheddingjobs would work to CSC’s advantage. AsRoberts explains: “Lots of industryspecialists in their 30s and 40s who hadlost their jobs ended up setting up theirown consultancies. These people werelean, mean and hungry with many contactsin the industry so what we did really fittedthe bill for them. The growth of ourbusiness in the UK has really come fromthese emerging new businesses.”


5news

The Building Information Modelling(BIM) software and services marketis growing rapidly, as companies,organisations and governmentsembrace solutions to drive efficiencythrough construction projects.Forecasts from Pike Research suggestthat annual worldwide revenue forBIM products and services will growto almost $6.5bn by 2020, as supplychains become increasingly joined up,from architects all the way through toconstruction and FM.

Meanwhile, expect plenty more M&Aactivity in the sector. Small firms withan innovative BIM solution quicklybecome the focus of larger playerskeen to enhance their own productportfolios and monitor technologyadvancement in areas such as BIM tofield solutions, cloud-based solutions,and mobile capabilities.

BIM software

The sale of CSC caps a decade-longrelationship with Clearwater. Thecompany's 2003 buyout was the firstever deal completed by Clearwater,following its own buyout from a plc,while we then advised the companyon its investment from Isis EquityPartners in 2008, an acquisition inIndia and subsequent sale to Trimble.CSC Managing Director Mark Robertsstresses that the relationship wasnever just about doing the next deal.

“It was about keeping in touch all theway through our journey. Doing adeal can be emotional andClearwater are particularly good atmanaging emotion in the process.”

always there, but we also knew it would be athree to five year journey to get to where wewanted to be. When it was time to initiatethe sale process we drew up a number ofbuyers in the US and Europe, and against allcriteria Trimble were top of the list.”

Roberts believes that for any UK companythinking of a trade sale to the US, it isfundamental to build up close relationshipsacross the Atlantic first. “You have got todo some serious homework. There is nopoint just planting a flag over there with noclear plan. You need a really good gameplan and to be thinking long term.

“You really need to understand the marketand what you need to do to your products,and also how to motivate your people toget there.”


6cloudex

Earlier this year Clearwater launchedCloudex 20:20, our search for the UK’sleading independently-owned cloudtechnology businesses. Having drawn up ashortlist, we then invited a distinguishedpanel of industry experts to adjudicate ona final top 20 who were invited to ourinaugural awards where the top threewere announced.

The cream of UK talent in the cloud technology arena joined usfor our inaugural Cloudex 20:20 awards in London.

Rising stars

“There were certain attributes that ran through all ourwinners. They were naturally born cloud companies with no legacy mindset, while analytics was the bedrock of their business.”Angela Eager

so dominated by US headlines that wewanted to celebrate innovation in the UKand we saw these awards as a fantasticopportunity to unearth innovation in thehome market.”

Judges based their selections on a broadrange of criteria. How innovative andspecial were the companies? Were they a

Judge Stephen Warshaw said the awardsshowed that the UK had a fantastic trackrecord for innovation. “Cloudex is puttingcompanies that were below the radarabove it. However one of the moststriking features that came out of theseawards is that investors have to bepatient, especially when companies aretransitioning their model.”

Emma Rodgers, Director of TMT MarketIntelligence at Clearwater, explains therationale for the awards.

“After completing a number of deals in thecloud space, we initially set up theCloudex index three years ago looking atthe stock performance of cloudcompanies. In the early days we weremostly tracking US companies, but havingmet so many interesting UK businesses inthis area we decided we needed toredress the balance. The market has been

first mover in their market and did theyhave the potential to be a leader? Howcloud pure were they - i.e what percentageof their business was really cloud or hadthe business been re-engineered?

Judges also looked at the customer baseof the entrants and the extent to whichtheir products were a 'must-have' fortheir customers. In addition they took intoaccount growth trajectory, concentratingmore on revenue than profit growth.

Neville DavisChairman - SecureData;Trustmarque

Angela EagerResearch Director - TechMarketView

Stephen Warshaw Portfolio Director - Hg Capital &Chairman, TeamSystem

Steve GarnettEuropean Chairman - Salesforce.com

Emma RodgersDirector - TMT Market Intelligence,Clearwater Corporate Finance

Our panel

7cloudex


Fourth is a pure play Software-as-a-Service (SaaS) providerof management systems to the restaurant, hotel andleisure sectors.

What has been the key to your success?

Rigorous focus and an absoluteunderstanding of what we do and whowe do it for. It is then possible to getextremely good at whatever it is you do.The business is led by that focus and wemake decisions with that backdrop alwaysin mind.

Are there particular characteristicsthat make a successful cloud businesstoday?

It’s about technology, approach and themodel. A great cloud business needs tohave a brilliant method of rapidly andsafely deploying features and functionalityto a well maintained code base. Focus onrecurring revenue is key. Your client baseneeds to buy into that and go on thejourney with you. Never compromise thatcontracted monthly recurring revenue withchunky one-off service fees.

What are the biggest opportunitiesfor you now?

Global expansion and doing exactly thesame thing with the same focus.

What are the biggest challenges thatyou have faced?

Cash and funding is the obvious one. It takestime and a lot of money to build strongmonthly recurring revenues and a platformthat does everything that it needs to inorder to service its marketplace. Secondly,

scaling and keeping up with the growth. Youhave to be able to evolve and adapt areas ofthe business on an ongoing basis.

Looking back, is there anything youwould have done differently?

Upon proving the business and generatinghealthy profits, we should have investedmore into R&D. The road map is alwayshealthy but full. Fourth always want to domore, quicker.

Have you found the UK a conduciveenvironment/market in which to growyour business?

It evolved alongside Fourth. The businessand model were ahead of their time andthe market needed time to understand it.That was a difficult period, but we gotthere and it’s fairly grown up now. Theindustry wants SaaS and it’s understoodwidely.

Tell us more about your globalambitions.

We acquired a business just over 12months ago in the US and are building onthat, as well as ‘Fourthifying’ it. It is a cloudbusiness currently offering some of thesame services Fourth offers, for some ofthe same clients. By acquiring, we not onlygot a great product and client base but realpeople, offices and contracts in the US.This has given us a great head start.

Ben Hood, Fourth

1st: Fourth

2nd: Acturis

3rd: Livebookings

One to Watch: Skyscape

Winners

Judge Angela Eager echoed Warshaw’scomments on innovation. “There werecertain attributes that ran through all ourwinners. They were naturally born cloudcompanies with no legacy mindset, whileanalytics was the bedrock of their business.They offered multiple functions but theirsoftware was designed for very specificbusiness tasks. This is an absolutelyfundamental point as the sector movestowards industry specific solutions.”

Eager said the overall winner Fourth stoodout for the way it was tackling businessissues that really needed addressing. “Thelink with business outcomes is so importantand key. Likewise, with Livebookings whatimpressed was their ability to analyse data.Meanwhile, Acturis' insurance managementsector is rife for automation and there isreal scope to disrupt the market with alow-cost, low-risk platform.”

Announcing the winner of the One to Watchcategory, Clearwater TMT partner CarlHoughton said he was very excited aboutthe prospects for Skyscape, a supplier tothe government’s G-Cloud framework.

“Half their revenues are coming out of theG-Cloud and unlike many companies theyare making a viable business out of thisprogramme.”


8cloudex Acturis is a SaaS platform for

the general insurance industry.

Are there particular characteristicsthat make a successful cloudbusiness today?

Both track record and depth offunctionality for a cloud solution needsto be high. Track record needs to reflecta high degree of reliability and resilienceover a number of years. Remember thatthe customer is placing a lot ofresponsibility in your hands, especially ina vertically-oriented cloud solution, andthe resilience and reliability of theplatform needs to be beyond question.


We are expanding into internationalgeographies and derivative areas in theUK market. These are both major areasthat will allow further UK growth.

What are the biggest challengesthat you have faced?

Initial credibility is always a key challengefor new cloud services, especially whenthey perform key mission critical back-office functions. This is especially truefor vertical SaaS offerings versushorizontal ones since the vertical offersare generally ‘mission critical’.


A single, proven, vertically-orientedsolution for full end-to-end back-office functions in the insuranceindustry, without the need forextensive IT involvement. For many

customers, IT is a necessary butdistracting part of their business sobeing able to have this managed by areliable third party simplifies things.

Do you have global ambitions?

We are actively expanding intoterritories around the world. Since somuch of the now well-provenfunctionality is relevant around theworld, there is a great opportunity toleverage our knowledge and technologyinto these markets.

What advice would you give to a start-up business in the sector today?

Choose technologies and architecturescarefully, as these choices are hard tounpick. Secondly, it is down to people.Without the right team, it is difficult todeal with the inevitable challenges alongthe way. Thirdly, reality is never asplanned so the linear spreadsheetrevenue model you developed should goout the window. The reality is that thesebusinesses have a kind of networkeffect that is hard to model and isslightly exponential in nature. You haveto plan for this and colleagues have tounderstand that there will be ups anddowns along the way.

Thomas Stuart, Acturis

Livebookings operates a web-based restaurant reservationsand marketing service.


Recognising ahead of our competitors thepotential of cloud-based technologies tocreate a scaleable marketplace forrestaurants. With such technologies, we candevelop market-leading technology withoutthe need to install software in restaurantsand offer a real-time marketplace tointelligently connect supply and demand.

Are there particular characteristics thatmake a successful cloud business today?

Firstly, a very clear understanding of theproblem you are trying to fix and the uniquerole the cloud has to play. In our case,delivering a platform that can be evolvedand scaled in a highly fragmented anddecentralised market such as restaurantscan only be achieved long term with cloud-based technology. Secondly, you need avery strong culture of product innovationwithin an established and structuredproduct development framework.

What are the biggest opportunities foryou now?

Geographic expansion into other marketsand creating the most vibrant and activerestaurant marketplace in Europe; furtheroptimising the intelligence of our platformfor connecting supply and demand, thusyielding optimisation for our restaurantpartners; and responding fully to the needsand expectations of diners, driven by theirincreased mobility.

Joe Steele, Livebookings

9cloudex



The disaggregated and varied marketplacein which we operate has meant we’veneeded a considerable local sales presencein each market. Also the fast pace oftechnology change, both in terms of futurecompatibility of systems and platforms andthe broad spectrum of partnertechnologies to integrate with.

Looking back, is there anything youwould have done differently?

We have grown organically and also byacquisition, therefore the sum of our partsnow is not an overall singular design. Wehave spent the past year ensuring theperformance of our cloud-basedmerchant and consumer platforms are ascompetitive and scalable as they need tobe to realise the intelligent marketplacemodel. We are now very well placed toaccelerate our proposition and growth.


Yes. The UK is right on the frontier when itcomes to the evolution of cloud businessesand we have benefited without questionfrom having our headquarters here.

Skyscape is a supplier to thegovernment’s G-cloudframework developing servicesdesigned for the UK public sector.


The G-Cloud framework has maderemarkable advancements in successfullyopening up the previously stagnant publicsector IT market, making it possible forcompanies of all sizes to compete for andwin government contracts.

Are there particular characteristicsthat make a successful cloudbusiness today?

Understanding customers’ motivations forcloud adoption, as well as any hesitationsand misconceptions they might have, is anessential part of being successful. Whileprofessionals in the cloud space can easilyunderstand the benefits for public sectororganisations transitioning to the cloud,there’s still a fair bit of education to bedone when it comes to public sectoremployees understanding theimprovements that could be made byadopting a cloud strategy.


There is still a lot of potential with themarket still in its infancy. Some centralgovernment departments are alreadysuccessfully embracing the cloud, but manyare yet to implement cloud solutions andlocal government departments are laggingfurther behind still.


Lack of understanding continues to be thebiggest challenge and education is key. Inorder to really capitalise on the significantmomentum achieved by the G-Cloudframework, and to achieve the full potentialbenefits for the UK taxpayer and citizen,there is still considerable work to be doneto continue the process of awareness andencourage further adoption. It is vital thatthose organisations that are alreadysuccessfully using the cloud areempowered to talk about their experiences.


The UK is truly leading the way when itcomes to shaking up how the public sectoruses and procures IT. The Public cloud Firstpolicy has played a major role in encouragingcentral government organisations to moveaway from legacy technology and considerthe benefits offered by a host of assuredand cost-effective cloud services. As aresult, Skyscape is currently working onmore than 100 projects across centralgovernment, local authorities, police,healthcare and other publicly funded bodies.As departments see the benefits,momentum continues to build across the UKpublic sector.

Phil Dawson, Skyscape


10interview

When big business runs into trouble, Rivo Software is on hand to help.

Managing reputationsRivo Software’s chief executive Simon Hookcan offer a pretty blunt raison d’être for hisbusiness. “When you run a big organisationyou know that something will go wrong, theproblem is you just don’t know where. We areabout helping to mitigate those problems.”

In an age when organisations have nochoice but to proactively manage theirreputation, Rivo - which helps businessesmanage compliance and business riskthrough its cloud-based softwareSafeguard - has found itself neatlypositioned in a fast-growing market.

internet. At the same time people havebecome empowered by social media. Theyare quick to form their own perspective ofbrands and can be quick to help evaporatebrand value too. Our technology allowscompanes to handle it, allows them to beprepared.”

Hook cites the horsemeat scandal as acase in point. “The impact from a brandperspective on Tesco was huge, eventhough the problem was further down thesupply chain. But this misses the point. Itwas up to Tesco to ensure that the supply

the business. We saw an opportunity to helpcompanies manage risk and standardisetheir business by using technology. We alsonoticed that this was a bigger problem thebigger the business.”

Although at the time risk management wasquite an immature market, Hook says bigbusinesses did understand the conceptsbehind it. “The problem was that they werenot very good at controlling it. We knewwe could deliver a technology platform tomanage risks across all domains. From atechnical point of view, there is a lot ofcommonality across risk whether it’sfinancial, operational or insurance. Thereare a lot of common characteristics.”

But Hook says as a fledgling companyRivo also knew it could not be all things toall people. “We needed to focus on oneparticular area, so we chose health andsafety. We knew we couldn’t choose abusiness critical function because of oursize so it had to be something importantenough and regulated enough so that acompany took it seriously.”

In the early years, Hook says one of thebiggest challenges was the lack of a definedpurchasing channel for what Rivo wasoffering. “There was no obvious person tosell to because it wasn’t business critical. Weended up selling to all sorts of people: HRdirectors, operations directors, sometimesCEOs themselves. However, as we grew wefound we didn’t have to particularly market

Hook especially points to the huge shifttowards off-balance sheet value in recentyears. “Twenty years ago as much as 80%of a company’s value was probably intangible assets. Today up to 70% of thatvalue is in off-balance sheet items,whether it’s knowledge, brand, reputationor culture. The more your value is inintangible areas, the more you need riskmanagement in your business.”

He adds that changing society expectationsadds to the mix. “Consumers are demandingever more social responsibility frombusinesses, an awareness fuelled by the

chain was completely standardised, so thatthey knew exactly where everything wasbeing sourced from. Standardisation drivescontrol and visibility.”

It was this mantra that gave Hook andbusiness partner Matt Duckhouse theoriginal idea for Rivo. “We used to work in abusiness selling web services to automotivedealers and saw the challenges thatdistributors had in getting control andvisibility across their operations. Dealerswould have the same operating procedures,but local interpretation meant that you weregetting different sets of information across

“Rivo is in a great marketplace and I don’t think it has fullyappreciated in the past just how good a market this is.”Steve Husk

ourselves. Middle management would oftenidentify the problem, google for help andcome across us.”

In the wake of Rivo’s recent acquisition bytechnology growth investor KennetPartners and Fidelity Growth PartnersEurope, Hook can look back at a numberof key decisions which have contributedto its success. “One that really stands outwas our decision to provide a hostedsolution,” he recalls. “At the time it wasnot an obvious thing to do and we wereoften met by a fair degree of scepticismfrom business owners, but it turned outto be one of the best things we ever did.Having a single platform built on a suite ofMicrosoft products was another keydecision, because it ensured thateveryone was always on the latest versionof the product. The client gets resilienceand security that they could not hope toput into their own systems.”

Offering its first multi-lingual service wasanother landmark, as was the first globalroll-out of services for a client. In 2010,Rivo also opened an office on the US EastCoast. “We wanted to plant the flagsomewhere and we have been able tobuild on the back of some big contracts inthe US,” adds Hook.

Expanding that global footprint nowforms a key plank of the investment fromKennet and Fidelity, who have taken an 85per cent stake in the business for anundisclosed sum. Serial technologyinvestor Steve Husk, brought in by Kennetas executive chairman of Rivo, says thebusiness is perfectly positioned to buildup its global presence.

“Kennet was very interested in this marketand had been looking at a number ofdifferent companies. Rivo is in a great

marketplace and I don’t think it has fullyappreciated in the past just how good it is. The market is very fragmented so if we playour cards right and hire the right people wewill do very well.”

Husk says growth will be both organic andnon-organic. “I always think it is good tohave a mix of the two. Rivo is thefoundation platform and we can now putacquisitions on top to really expand thebreadth of the business. Within five years Iam looking for at least a $50m company, afive-fold increase on today. We want to getup to 200 staff too, with half of those herein the UK and the rest across the world.”

Expanding the breadth of the businessmeans moving the business away from justhealth and safety. “We will now be talkingto clients about their supply chains,account management, reputation andsocial media too. The full mix,” adds Husk.

Hook echoes the global potential. “Ourproducts get languages, get time zones,get different currencies. We have thearchitecture we need and it is aboutproviding an overlay of technology acrossthe different elements of a business. Toget to this next stage, we had known forsome time that we needed newinvestment. We had grown the businessas far as we could on our own.”

He says that although the company ran atwin track investment process, thepreference was always for a PE deal overtrade. “We were very wary that we didn’twant to lose the culture of the businessand knew that a PE buyer would be moreopen-minded on that front. A trade playeris far more likely to say ‘we hear what youare saying but this is the way we do it',which was not what we wanted.”

11interview



12research

Private Equity (PE) houses are finally seeing a good windowto exit assets as trade buyers return to the market.

Heading for exit

As we head into 2014, there isundoubtedly an increasingly positivemarket sentiment. Corporates are back atthe bank asking for debt to finance newtransactions; PE houses have raised someimpressive new funds and are looking forways to splash the cash; and, as ourCloudex 20:20 initiative demonstrated, theUK technology scene feels more vibrantthan ever.

Of course, the economy is still making lifetough for many and a tendency towards

reserve in M&A still persists, but ourstatistics tell a positive story. In the firstthree quarters of 2013 there were 147announced transactions in the TMT spacecompared to 113 over the same period in2012. This puts us well on course to topthe 197 deals completed in 2012,although with the proviso that 2012 didend with something of a flurry of activity.

The defining trend of the year has been thesurge of strategic buyers returning to themarket, evident in some of the largest deals

globally during 2013. Both Salesforce andAdobe paid large prices to take a position inthe fast moving marketing automationsegment – ExactTarget for £1.6bn andNeoline for £390m respectively – andMicrosoft finally made a move to addressits weak position in the mobile market,announcing the acquisition of Nokia’sdevices and services business for £3.2bn.

The same driver has enabled UK PE housesto explore exit opportunities for assets thatthey have held onto for longer than theyordinarily would have, driving furtheractivity in the market. UK PE exits over2013 were up around 40% whilst exits tostrategic purchasers were about 50% upcompared to 2012.

A typical example was the exit by ISISEquity Partners from Micro LibrarianSystems (MLS), the leading provider oflibrary and resource management systemsto the UK education sector, which the PEhouse had held since 2006. ISIS has nowsold the company to Capita, the mostprolific acquirer in the public sectortechnology market, which will continue tooperate the business on a standalone basis.Since originally investing in MLS, ISIS has

Deal volumes by month

- 2010 - 2011 - 2012 - 2013

Source: Clearwater research

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0

50

100

150

200

250

Num

ber of deals

almost doubled turnover as the companyhas taken market share and startedbuilding an all-important global footprint.The exit yielded a multiple of 2.8x and an IRR of 20%.

Another deal was the sale by HgCapital ofComputer Software Holdings (CSH) toAdvanced Computer Software (ACS), aprovider of business management andhealthcare software and services, for£110m. CSH is a leading provider ofaccounting and back office software to theUK professional services market and theacquisition marked ACS’ largest transactionto date, as well as providing a good exit forHgCapital which has actually acquired thebusiness twice in its lengthy history underPE ownership.

There were plenty of PE sales to overseasplayers during the year too. The sale byISIS of CSC World to Trimble Navigation is a

case in point and a great example of anasset which proved itself during thedownturn. Despite operating in a difficultmarket segment CSC is now reaping the rewards.

August Equity sold 4Projects Holdings, aprovider of secure, online collaborationsolutions for the building and infrastructuresectors, to US-based softwaredevelopment and management companyCoaxis. 4Projects software has been usedon large scale projects such as the OlympicPark and Emirates Stadium in London.August invested in the MBO of thebusiness back in 2007 and under itsownership the business has thrived,developing a presence in key constructionmarkets around the world.

One of the most eye-catching sales of theperiod was the acquisition of the AmorGroup, which specialises in IT services and

solutions for the energy, transport andpublic services sectors, by US groupLockheed Martin.

Lockheed said the deal was aligned with itsstrategy of expanding its capabilities andexpertise in international IT and civilgovernment services, as well as with itsgrowth in the energy market. Amor,backed by Growth Capital Partners, is oneof a very small number of IT servicesbusinesses in the UK market to havesuccessfully exited to an overseas tradepurchaser in recent years, and this could bethe start of a trend.

2013 also saw its fair share of secondarybuy-outs. OMERS Private Equity acquiredCivica, a specialised software systems andbusiness process services provider whichprimarily supplies public sector organisations,from 3i in a £390m transaction. AlsoMontagu Private Equity acquired CliniSys,


13research

UK mid-market PE exits - Jan-Sept 2013

4Projects Holdings August Equity Coaxis, Inc

Micro Librarian Systems ISIS Equity Partners Capita plc

CSH Holdings HgCapital Advanced Computer Software plc

Aepona Amadeus Capital Intel Corporation

Civica 3i OMERS Private Equity

Clinisys ECI Partners Montagu Private Equity

Avelo FS Holdings LDC Iress Ltd

Actix Summit Partners Amdocs, Inc

Ascribe Group ECI Partners EMIS Group plc

Amor Group Growth Capital Partners Lockheed Martin, Inc

Matrix Energy Solutions LDC E.ON

Company Vendor Acquirer

14research


a pan-European supplier of IT systems toclinical laboratories, from ECI Partners.

PE players continue to be majorparticipants in auction processes, in spiteof the fact that they are beginning to facemore and more competition from strategicbuyers. On the global stage, for example,PC giant Dell was finally sold in a $24.9bnbuyout to a team including PE investorsSilver Lake and Dell's original founderMichael Dell. The deal underlines the factthat PE still sees enormous opportunitiesacross the TMT sector.

Our data on valuations in the sector offerseven more reason to be cheerful. Comparedto our data from the same point in 2012,based on listed company multiples, we haveseen EV/EBITDA values rise across theboard: 35% in the telecoms services market,6% for software vendors and around 11%for IT service providers.

Some of this impact is due to generallyimproving market conditions, but strategicpurchasers will also have a significant impact.Whilst PE investors have paid some strongmultiples for assets over the past few years,it will always be difficult for them to competeon price against a true strategic purchaserwith synergies to realise and compellingreasons to outbid rivals for an asset.

What now remains to be seen is whether thisgrowing positive sentiment will be enough toenable us to overcome some considerableissues in the UK today. There is no doubt,however, that optimism is a key ingredient inlifting any economy out of recession or lowgrowth period and we, and our contacts andcolleagues across the TMT market, are findingmore and more reasons to be cheerful.

Buyers of UK TMT companies (Jan-Sept 2013)

Buyers of UK TMT companies (Jan-Sept 2012)



Source: Thomson One

n UK

n North America

n Europe

n Rest of World

n UK

n North America

n Europe

n Rest of World

Average enterprise value multiples (UK tech companies)

Telecoms Services 1.4x 1.4x 7.7x 8.1x

Software 2.7x 2.4x 12.8x 10.3x

IT Services 1.7x 2.1x 10.3x 9.8x

Sector EV/Revenue EV/EBITDACurrent Forecast Current Forecast

Global presence,Global expertise

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Tel: +44 845 052 0380Fax: +44 845 052 0381

LDC

Acquisition of leading B2B mobile application software developer

Clearwater Corporate Financeadvised the management team

Kirona Solutions

ISIS Private Equity

MBO of a provider of ERPsoftware to the constructionindustry from Sage Group plc

Clearwater Corporate Financeadvised the management team

Eque2

Aures Technologies

Disposal of a provider oftouchscreen electronic point ofsale terminals and systems

Clearwater Corporate Financeadvised the vendors

J2 Retail

Kennet Partners/FidelityGrowth Partners Europe

Disposal of a provider of SaaSmodel governance, risk andcompliance solutions


Rivo Software

Descartes Systems Group Inc

Disposal of a SaaS modelprovider of driver compliancesolutions


Exentra Transport Solutions

Trimble Navigation Inc

Disposal of a developer of 3DCAD solutions for the structuralengineering market


CSC (World)

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