Deal in focus: Verdane exits Banqsoft to Advent's KMD for 6x money

The sale of Oslo-based Banqsoft for NOK 300-400m to KMD ends a 12-year saga for Nordic portfolio acquisition specialist Verdane, and provides a bookend to the GP's first ever direct secondaries transaction.

Banqsoft was acquired as part of a 96-company portfolio owned by SND Invest, the Norwegian government's commercial venture capital and private equity arm. Verdane – then Four Seasons Venture – specifically raised the Four Seasons Venture IV (FSV IV) vehicle to buy out SND Invest, which it did in 2003.

Now, 12 years later, the subsequently renamed NOK 790m Verdane Capital IV vehicle has been fully realised with the sale of Banqsoft, and the vehicle returned around 2.5x net money and more than 30% net IRR to investors, Verdane managing partner Bjarne Lie told unquote".

FSV IV was in effect fully invested by 2003, and had originally been raised as a five-year fund, following the typical private-equity model of a five-year divestment horizon. But the Banqsoft sale is arguably a case in support of the idea that the classic 10+1+1, "five years in – five years out" fund lifespan is not necessarily ideal.

Lie says Verdane ran a failed exit process around three or four years ago, but decided against conventional wisdom and following through with a sub-optimal exit. The GP decided it was worthwhile – in dialogue with its investors – to extend the fund and give Banqsoft time to mature.

At the time, the Nordic fintech sector was burgeoning, and Lie says the beginning of the trend which has since seen companies like Klarna and iZettle burst forward, also formed part of the motivation for doubling down on Banqsoft.

"So we took a chance, went to the investors and asked if they were willing to back an extension," he says. "At the time we would have exited at a loss, and now we exited at nearly 6x money multiple."

Broader market
When Verdane had first considered exiting its 35% stake in Banqsoft, Lie says three key elements were missing for the company to generate a good return on investment for the GP: "First, the company wasn't growing sufficiently fast. Second, it had actually really poor profitability at the time, and third, the niche it was operating in at the time – leasing software – was too narrow."

Banqsoft's subsequent successful turnaround is attributed to Johnny Rindahl, who was brought in as new CEO by the GP in 2011, and the broadening of the company's focus from purely leasing finance to include management of loan, wholesale, fleet and deposit portfolios.

"By opening up a broader banking and financial services software play, we also significantly increased the size of the market, and the company went from marginal profitability to 20% EBITDA in two to four years," says Lie. The company had revenues of NOK 137m last year, with a pre-tax profit of NOK 23.9m.

The eventual exit came when Banqsoft was approached by Advent International-owned Danish IT services provider KMD. Verdane ran a sale process with corporate finance adviser Alpha Corporate Finance, where KMD ended up with the winning bid.

"There's a really good strategic fit between the two companies, in the sense that they are a Denmark-focused company with Nordic ambitions, and that today they have a fairly narrow vertical footprint – but the finance vertical has quite a few similarities to their core," says Lie.

KMD's buyout forms part of its expansion into the market for financial IT services, as well as a geographical expansion across the Nordic region, and follows a string of acquisitions since Advent acquired KMD in a 2012 SBO.

People
Verdane Capital – Bjarne Lie

Advisers
Vendor – Alpha Corporate Finance (Corporate finance).

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