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Tech Private Equity Demystified

February 2022

GLOBAL TECH INVESTMENT BANKING

PRIVATE EQUITY DEMYSTIFIED LONDON SAN FRANCISCO BRISTOL
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Private equity backed dealmaking # of private equity acquisitions

# of corp/strategic M&A acquisitions

continues its unprecedented run

% of PE transactions

3,386

Significant capital availability and continued economic recovery are

2,691
driving record private equity dealmaking in the technology sector 2,526
2,392 2,447 36.7%
2,367
33.5%
2,210

33.1% 33.4%
27.2%

2.6×
25.3%
2,145

37%
21.3%
1,789
1,683
Growth in number of PE 1,584
1,781
backed technology 1,788
deals since 2015 1,740
Of all technology exits
went to PE acquirers 1,241

>$1tn
in 2021 YTD 843 902
666 783
604
470

45%
Average premium paid by
Of dry powder in
buyout funds seeking
to do deals
2015 2016 2017 2018 2019

More than one third of all technology exits in Europe goes to private equity
(deals in 2021 up +38% on total 2020)
2020 2021

buyout groups for European

listed companies in
2021

SOLD TO PE-BACKED SOLD TO PE-BACKED SOLD TO PE-BACKED

PE INVESTMENT PE INVESTMENT
PLATFORM PLATFORM PLATFORM
Recent private equity funded
transactions advised by ICON
Corporate Finance

PRIVATE EQUITY DEMYSTIFIED Source(s): Pitchbook, FT, Refinitiv

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Exit options: private equity vs. trade

Considerations for the shareholders when approaching an exit transaction

Private Equity Trade Acquisitions

TARGET
COMPANY

ç Acquisition either to create a new buy-and-build ç Full ownership sought

platform or as a bolt-on to existing portfolio company
ç Cash and possibly shares for exiting shareholders
ç PE Likely to seek a control position
ç Potential earn-out provisions to assure target commitment
ç Expected to require management roll-over

ç Attracted by customer stickiness and revenue visibility ç Synergies drive valuation

ç Financial, corporate and management networks often provide significant ç Good understanding of the asset and industry dynamics
shareholder value creation
ç Providing a ‘home’ for the product and employees
ç Opportunity to de-risk equity position and allow founding shareholders to exit
ç 100% exit for the shareholder base
ç Allowing to bridging the funding gap and capitalise on market opportunities,
organically or via acquisitions ç Lengthy approval processes

ç PE invests in team to run the business ç Need to find the right internal acquisition project sponsor

ç Upside to be shared by current owners in a two-step exit ç Potential concerns around sharing confidential/commercially
sensitive information

PRIVATE EQUITY DEMYSTIFIED

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Private equity fund types

The types of PE funds and what they look for

PE FUND CHARACTERISTICS

Stage Size Ownership Specialisation

EARLY STAGE: VENTURE FUNDS SMALL- TO MID-CAP FUNDS INDEPENDENT FUNDS SPECIALISED FUNDS
ç Invest in early stage or emerging ç Usually invest in deals worth ç Solicit help from third-party ç Focusing on portfolio companies
businesses that generally have between $10m and $250m investors. Third-party investors in specific segments or verticals
limited access to other forms of might include other corporations, (horizontal: B2B Software, IT
capital. Focus on primary capital LARGE-CAP FUNDS the government, individual Services; vertical: Cybersecurity,
investors and lending institutions Digital Media, FinTech,
ç Large LBO funds whose fund
SCALE-UP: GROWTH FUNDS Manufacturing)
volume can be larger than $20bn
CAPTIVE FUNDS
ç Usually a minority investment, in ç Specialisation can be a crucial
relatively mature companies that ç Many companies establish differentiator but also contains
are looking for capital to expand captive funds to build higher portfolio risk due to a lack
operations, enter new markets or partnerships and make private of diversification
finance a significant acquisition. capital investments. Funds are
Can include secondary cash-out usually supported by corporate REGIONAL FUNDS
component capital
ç Target investments in a particular
ç For example, Salesforce, Inc. has region or geography
BUYOUT FUNDS
a captive fund portfolio managed
ç Invest in mature and profitable by Salesforce Ventures and
businesses, usually taking focused primarily on managing
controlling interest and a broad investment portfolio
leveraging their equity that seeks to invest in growing
investment with third party debt technology companies
to enhance the rate of return

PRIVATE EQUITY DEMYSTIFIED

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Large amount
GROWTH BUY-OUT

of funds actively
seeking technology
opportunities

EUROPE
in Europe
Growth capital and buy-out firms
have never faced more competition

EUROPEAN PE FUND’S DRY POWDER (€Bn)

€300
€273

€269
€257

2021*
€232

€250

NORTH AMERICA / GLOBAL

€196

€196

2020
€168

€200
€150

€151
€142

€138

€131
€126

€125
€121

€150
Overhang
€116

by vintage 2019

€100

Cumulative 2018
€50
overhang
2017
2016
2015
2014
€0
2021*
2006

2008

2009

2020
2007

2018
2016
2010

2012

2015

2019
2014

2017
2013
2011

PRIVATE EQUITY DEMYSTIFIED Chart source: Pitchbook

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What private equity is

EXIT
ç The typical exit horizon for a private equity
investor is three to five years, however in

looking for in a target

recent years the holding period has increased.
In the US, the top-quartile holding period now
stands at 7.1 years, the median remains stable

company
at 5.2 years
ç However in this extended bull market, many
portfolio companies have hit their financial
targets, which would typically trigger a sale, but
A high quality management team with a cash-generative, still hold promise. This results in PE firms trying
to hold their winners for longer and are coming
established business plan up with innovative methods to do so
ç Types of exit: strategic trade sale, secondary
PE funding/recapitalisation or an IPO

RETURNS
ç Private equity funds typically target a return of
25%-30% internal rate of return (IRR) and a
multiple of 2.5x - 3x on their initial investment
High quality Growth monies
Recurring Intellectual
management opportunities and ç The rule of thumb being that PE wants to triple
revenues property
team a growth strategy its initial investment in 5 years (30% IRR)

ASSOCIATED COSTS
ç Due diligence and legal fees
ç Arrangement fee (percentage of equity
cheque)
ç Loan note interest (paid versus rolled up
interest)
Established Niche or strong Room for
and proven market positions with Scalability operational ç Annual monitoring fee
business plan barriers to entry improvement ç Board director and observer fees
ç Chairman fees

PRIVATE EQUITY DEMYSTIFIED Source(s): Pitchbook

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How private equity works

The basic anatomy of the leveraged buyout deal

Acquisitions financed with a combination of equity LIMITED PARTNERS

•
1
Investors allocate money to
a PE/VC fund. They commit
and borrowed money, which is secured by the money directly (e.g. Family
target’s cash flow and assets ç Pension funds Offices) or on behalf of others
ç Endowment funds and (e.g. Pension funds)
foundations
ç Insurance companies
ç Banks • The target’s Enterprise
ç Non-financial corporations 2 Value is financed through a
ç Wealthy families combination of Equity and
Debt

TARGET COMPANY NEW SPECIAL PURPOSE COMPANY

1
ownership

• The current shareholders/

3 management team reinvest
new

EQUITY & a part of their proceeds for

EQUITY LOAN NOTES PE FUND usually 5%-20% of the shares
~5%-20% of the new company. The
ASSETS 4 ENTERPRISE 2 majority of this investment will,
VALUE as with the PE investor, consist
BANK of loan notes compared to a
DEBT DEBT small equity investment

proceeds reinvest • The TopCo controlled by the

3 proceeds 4 management team and the PE
firm has the new ownership of
TARGET COMPANY SHAREHOLDERS the target

PRIVATE EQUITY DEMYSTIFIED

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Private equity ORGANIC REVENUE GROWTH DRIVERS

ç Geographic expansion Improving each tool by 1%

value creation
affects profit differently ‡
ç Price increases and improved selling
ç Change of offering
Price 6.0%
ç New products
ç Deploying superior management
Variable
Drive transformational growth during a relatively ç Tapping into PE knowledge networks cost 3.8%

short period, resulting in significant returns COST REDUCTIONS

Volume 2.1%
ç Operational efficiency
“Which of the following is part of your value creation strategy?” † ç Procurement transformation
Fixed 1.1%
Cost reduction 90% ç Improved financial systems and controls cost
ç Overhead cost reduction
Improving working capital 80%
ç Capacity adjustments
Bolt-on acquisitions 69%

Changes to product/service offering 63% BUYING AND BUILDING

EXIT PROCEEDS
Synergies 60% Growing via well-executed and integrated add-on acquisitions is a key
ingredient of the Private Equity playbook on how to create value for their portfolio
Renegotiating supplier contracts 54%
companies.
Channel expansion 50% REVENUE GROWTH The rationale is driven by the ability to realise cost synergies, economies of
Supply chain reorganisation 37% scale, achieving market power with customers and suppliers, improving financial
performance of targets, strengthening their balance sheet and providing access
Plant rationalisation/closings 28%
to new markets and capabilities.
Offshoring 4%
MARGIN
IMPROVEMENT BUYING AT 5X AND SELLING AT 7X
ENTRY COST Multiple expansion opportunities is highly dependent on the underlying
market conditions. Fierce competition among PE firms has created bidding
Rule of thumb: environments that have led to aggressive pricing for the initial target acquisition,
Triple their initial limiting the multiple arbitrage potential. This also applies to buy-and-build
EQUITY investment in 5 ACQUISITIONS
years (30% IRR) multiple arbitrage.

LEVERAGE
MULTIPLE EXPANSION
The third party debt used for the initial acquisition is paid down over years with
DEBT the cash flow generated by the acquired company. This leaves a much larger
DEBT PAYDOWN portion of the exit proceeds for the shareholders.

YEAR 0 Usually 3-5 years YEAR X

PRIVATE EQUITY DEMYSTIFIED Sources: † Private Equity Global Divestment Study – EY (2019); ‡ Economic sensitivity analysis for c. 1,000 midsize ($100m - $1b) US public companies - Mckinsey & Company (2017)
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Is private equity the right choice?

Considerations for the shareholders, company and management when pursuing a private equity transaction

Financial Management Governance Cultural

ç Management’s confidence and ç Newly issued services contracts ç Monthly management reporting ç The business and management
belief in achieving the business with onerous good/bad leaver with increased scrutiny of are ready for a step up in pace
plan provisions when management performance and projections
ç Board composition and voting
team member is to leave before
ç Ability of the business to handle ç Typically at least ten board rights dominated by private equity
a joint exit event
debt, cash flow to service it meetings per year
ç Appointment and relationship with
ç Sweet equity participation for
ç Ongoing costs to the business: ç ‘Swamping’ rights: step-in/ investment director and chairman
existing and new management
bank debt interest and non- enhanced voting rights for Private
team members ç Ongoing monitoring
rolled up loan note interest, Equity to obtain a voting majority
requirements: focus on
monitoring fees, board fees, etc. ç Option scheme for key staff and in specific circumstances, such
performance and cost
additional hires as significant under-performance
ç Quantum of cash out and
or default ç Sensitivity of PE house for
roll-over requirement for ç Appointment of chairman
(country) specific cultural
management team ç Consent matters that require PE’s
ç Appointment of investment matters, such as business
approval on areas such as capital
ç Breakdown of roll-over director and board observers continuity, employee rights
expenditure, large contracts,
reinvestment into loan notes and
partnerships, hirings, M&A,
equity
changes to share capital, bank
financing, director appointments

PRIVATE EQUITY DEMYSTIFIED

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Case study: Juriba raised growth

investment from private equity firm BGF
Transaction summary
ç Juriba, headquartered in London, is a developer of IT
MBO migration management software designed to run IT
infrastructure projects across the enterprise, such as
Windows 10, Office 365, email, server, phone, and
desktop virtualisation
ç Its flagship product, Dashworks, is a command-and-
control platform enabling organisations to efficiently
accelerate IT transformation projects at a reduced
Digital Transformation cost
ç Juriba’s customers and channel relationships include
SECTOR
leading global giants such as HP, Flexera, DXC,
Client statement

“
Enterprise Software Atos, IBM, NTT, Wipro, HSBC, GSK, AIG, Morgan
We are pleased to announce our new
IT Infrastructure Mgmt Stanley and Deutsche Bank, within key industry
partnership with BGF to fuel further growth and
Digital Transformation verticals including the financial services, utilities,
international expansion. This is an exciting time for
pharmaceuticals, retail and media sectors
Juriba as we make further inroads into the US market
DEAL TYPE and we are looking forward to working with the team at BGF in achieving
the ambitions of the business and in continuing to scale. BGF’s patient
PE Growth Investment ICON’s added value approach and strong record in supporting businesses in the IT and
ç ICON was the exclusive adviser to Juriba running Software sector makes them a perfect partner for Juriba as the business

”
a dual track process targeting trade acquirers and moves forwards.
private equity
Iain Fraser
ç Assisting the management shareholders in structuring
Founder & Chief Sales Officer, Juriba
an efficient and competitive process
ç Navigating a complex Private Equity deal structure
and recapitalisation

PRIVATE EQUITY DEMYSTIFIED

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Case study: Paragon acquired by Vista

and TA Associates backed Aptean
Transaction summary
ç UK based Paragon’s software powers the logistics and
ACQUIRED BY distribution of billions of dollars worth of goods around the
world
ç Paragon is one of the most sophisticated and advance
solutions in class. Its feature rich product set underpinned by
highly evolved algorithms is ideally suited for distribution of
goods in densely populated urban environments taking into
account restrictions around emissions, congestion charges,
Logistics Analytics noise pollution and localised peak times of traffic
ç US based Aptean is a global leader of mission-critical
SECTOR enterprise software solutions. The acquisition of Paragon by Client statement

“
Enterprise Software Aptean furthers Aptean’s presence in the European market
and adds purpose-built software designed to meet the We are really pleased with the outcome, for
SCM & Logistics
expanding supply chain needs of its customers around the both the shareholders and the future of the business.
Software
globe. We certainly achieved the synergy we were looking for
in the new owners. ICON has been fantastic throughout
ç With Paragon joining the Aptean group, Paragon’s algorithms
DEAL TYPE the process, keeping the project moving all the way, and a pleasure to
now sits at the heart of the delivery of billions of pounds

”
work with. We absolutely chose the right company to advise us.
Sale to PE backed worth of goods.
sector consolidator
Charles Nockold (Founder) & Will Salter (CEO)
Paragon
ICON’s added value
ç Identifying and presentation the key attributes of Paragon
that would be relevant and attractive to potential acquirers
ç Significant reach to attract the attention and solicit bids from
the most relevant, deep-pocketed and PE-backed acquirers
ç Two-stage auction process
ç Rapid closing and DD process

PRIVATE EQUITY DEMYSTIFIED

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About ICON
Corporate Finance

GLOBAL TECH INVESTMENT BANKING

PRIVATE EQUITY DEMYSTIFIED

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Deep experience Industry Focus:

AI & Data FinTech

180+
8
CyberSecurity HeathTech

combined years’

1
experience Cloud/ Enterprise

250+
languages comms Software
spoken

closed
transactions
25
countries
focus –
Tech Investment
Banking
transacted in

Banker Backgrounds

PRIVATE EQUITY DEMYSTIFIED

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Global transaction record

WEALTHIFY
STRATEGIC
INVESTMENT
AVIVA
PARMENION FinTech
ACQUIRED BY REDLAND
ABERDEEN ACQUIRED BY
Digital Wealth Mgmt IDEAGEN
CYPAD
RegTech ACQUIRED BY
HONEYCOMB.IO
PARENTPAY MERGED WITH
eProcurement GROUP IMD
BUSINESS
INTEGRITY TV Ad Delivery SaaS APPLICABLE
ACQUIRED BY ACQUIRED BY
MOSAIC
FOCUS THOMSON REUTERS STRATEGIC INVESTMENT NTT
GROUP EUROPE GRC Software JP MORGAN, EXACTIVE COMMUNICATIONS
ACQUIRED BY COMMERZVENTURES, ACQUIRED BY Unified Communications
OCTOPUS VENTURES
ACCENTURE GAMMA
FinTech Ai
IT Biz Mgmt Software
Unified Communications

RUMM
OPTIMUM ACQUIRED BY
CONTACT NPOWER
ACQUIRED BY
IQVIA Energy Management
Healthcare Analytics

PARAGON THE
ACQUIRED BY TOCARDO MY-CHANNELS MOBILITY HOUSE
APTEAN STRATEGIC ACQUIRED BY STRATEGIC
INVESTMENT INVESTMENT
SOFTWARE AG
Logistics Analytics REPSOL DAIMLER, MITSUI&CO
Energy Streaming Integration Automotive & IoT Mgmt

NATIV
ACQUIRED BY
TELSTRA
Video Tech SaaS

IMX
ACQUIRED BY
INFINEA
FinTech

PRIVATE EQUITY DEMYSTIFIED

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Global transaction record

Selected recent deals advised by ICON Corporate Finance
For further details contact:
Florian Depner
+44 (0)753 335 5852
florian@iconcorpfin.com
SOLD TO STRATEGIC INVESTMENT STRATEGIC INVESTMENT STRATEGIC INVESTMENT SOLD TO SOLD TO Simon Moynagh
+44 (0) 7748 380 847
simon@iconcorpfin.com
Alan Bristow, CEO
+44 (0) 207 152 6375
alan@iconcorpfin.com

 ICONcorpfin
 icon-corporate-finance

PE INVESTMENT SOLD TO SOLD TO SOLD TO SOLD TO SOLD TO

ICON Corporate Finance

Office: 580,
San Francisco Office:
California Street, Financial District,
San Francisco 94104
Office: 53 Davies Street,
London Office:
London W1K 5JH
Office: 5 Kings Court,
Bristol Office:
Little King Street, Bristol BS1 4HW
SOLD TO STRATEGIC INVESTMENT SOLD TO SOLD TO SOLD TO SOLD TO
www.iconcorpfin.com

Regulated by the Financial Conduct Authority. Member of the

BVCA. Registered in England & Wales No. 3714426

Registered Representatives of and Securities Products and

Investment Banking Services are offered through BA Securities,
LLC.. Member FINRA SIPC
LLC SIPC.. ICON Corporate Finance and BA
Securities, LLC are separate, unaffiliated entities.

PRIVATE EQUITY DEMYSTIFIED

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ICON Corporate Finance

London | San Francisco | Bristol
www.iconcorpfin.com
 twitter.com/ICONcorpfin
 linkedin.com/company/icon-corporate-finance

GLOBAL TECH INVESTMENT BANKING

PRIVATE EQUITY DEMYSTIFIED LONDON SAN FRANCISCO BRISTOL