Deal in focus: Enterprise makes 12x money on AVG exit

Enterprise exited AVG through a series of placements on the stock exchange, and is believed to have reaped a total of €300m from its investment. Its website states it held a 9.9% stake in the company following previous placements on the stock exchange.

"Since the very beginning, we thought that listing would be the preferred exit route," says managing partner Dariusz Prończuk. Enterprise is believed to have generated a 12x return through its final sale of AVG shares, which is the highest exit multiple ever achieved by the firm. No advisers were used for the sale.

It also represents the most successful exit for the Polish Enterprise Fund V vehicle, which held its final close in January 2004 on €300m. "While we always thought that the company had a high growth potential and we expected very attractive returns – hence why we were willing to accept the risks – the final result exceeded our most optimistic expectations," says Prończuk. "This was mainly due to the fact that the business grew through exponential growth of the user base and several acquisitions, which helped expand the product portfolio beyond the original antivirus software in a relatively short period of time.

"The company entered the secure internet search market, which was a very dynamic segment. Also, mobile security, which did not exist at time of our original investment, contributed to the success."

A bug's life
Enterprise Investors acquired AVG (then Grisoft) in June 2005 alongside Intel Capital. According to unquote" data, the two firms acquired a 65% stake in a deal worth around $52m, with Enterprise taking a 45% stake and Intel buying 20%. The remainder stayed in the hands of private equity house Benson Oak.

In October 2009, TA Associates paid around $200m for a minority stake in the business, resulting in a partial exit for both Intel and Enterprise. The latter held a stake of 34% following the deal and reaped more than 4x its original investment.

"At the time of our investment in 2005, AVG – then Grisoft – was a small but technologically advanced player on the large antivirus market," says Prończuk. "It had a significant and fast-growing number of users and the market itself – the number of PCs and laptops worldwide – was growing very fast. The business had a low-cost online distribution model, which we thought was convenient for end-users, and was focused on the consumer and SME markets, which were underserviced by global players.

"The company had also just entered the US and UK – the largest antivirus markets. To summarise, we had a product that could potentially be a global one, a business with very attractive economics and we were also the largest shareholder of AVG at that time," he adds.

Spreading the antivirus
Enterprise's plan for AVG was to enter new markets as soon as possible, Prończuk says. The firm and company did this by broadening AVG's product base into other areas of online security, such as anti-spam software and anti-spyware. The new products were offered only in the professional edition or as a separate paid product to increase revenues.

AVG floated on the NYSE in February 2012, resulting in another partial exit for Enterprise and Intel. The business raised $128m, of which $64m was new capital for the company, giving it a market cap of around $870m. However, shares decreased a fair amount in price on its first day of trading, reaching a low of $13.45 apiece.

Founded in 1991, AVG is headquartered in Amsterdam and has a further 10 offices worldwide. The company employs more than 1,000 staff and its CEO is Gary Kovacs.

AVG is a provider of antivirus and other security software for PCs, Macs, mobiles and tablets. It claims to have 187 million active users, which Enterprise says is a 7.5x increase since its investment.

The market cap of the company has also increased by 11.5x to $919m. AVG generated $407m in revenues last year – a 14% increase on the $356m recorded in 2012. At the time of Enterprise's investment in 2005, the company recorded $21m in revenues.

The Americas represented a 55.6% share of AVG's turnover last year, while the EMEA region represented 37.8%. Compared with geographical revenue generation of the previous year, EMEA is becoming a bigger market for the company while the Americas' share in revenue is declining.

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