Hg and ICG in £1.3bn Iris buyout

The deal is the latest development in Hg's 14-year involvement with the software business, with its Hg6 Fund selling its entire stake via the latest transaction. It represents a 4.2x return for the fund after a six-and-a-half-year tenure, equivalent to gross IRR of 26%.

The investment is the second deal made from Hg's first large-cap vehicle Hg Saturn Fund, which launched in 2017 with a target of £1bn and a hard-cap of £1.5bn. It also marks the maiden investment for ICG European Fund VII, a 2018-vintage vehicle with a €4bn target that invests a range of debt and equity-like instruments.

According to a statement, the transaction will see Hg and ICG having a "joint partnership" in the group. The pair have worked together on previous software investments, including deals for Visma and Team System.

The deal was conducted via a competitive auction process, with a recent report by Sky News stating that Omers Private Equity was also involved in the process.

According to a statement, Hg6's divestment of Iris is the 18th exit made by the vehicle and brings the fund's total returns relative to invested cost to 207% to date.

Under Hg's tenure to date, Iris has made numerous bolt-on acquisitions. Most recently it acquired payroll software company Star Computers in May 2018 and Contact Group – a UK provider of parental engagement and truancy management software to the education sector – in April 2018. The group will continue with its existing acquisitive growth strategy under the joint ownership of Hg and ICG.

The latest transaction comes almost three years after Iris refinanced, with Bobson, EQT, CVC and Parksquare Capital providing a new debt package worth £450m. The refinancing gave the business an enterprise value of £763m and saw Hg providing recapitalised funding.

Hg made a partial divestment from the group in March 2013, when it sold the Computer Software Holdings division, which focused on the legal and not-for-profit markets, to trade buyer Advanced Computer Software in a £110m EV deal.

Previous funding
Iris first received private equity backing in 2000, when LDC acquired a 67% equity stake in the business as part of a £32m EV deal. LDC then invested in a £9m expansion round for the company the following year in order to support the acquisition of Freeway Software.

Hg first backed the company in July 2004, when it invested £42m for a 62% stake as part of a £105m secondary buyout, with LDC reinvesting for a 12% stake.

Hellman & Friedman then acquired Iris and another Hg portfolio company, Computer Software Group, in a £500m deal in June 2007, with Hg retaining an 8.5% stake in the newly consolidated group.

Hg reacquired a majority stake in Iris in December 2011 in a £425m deal, with the transaction marking Hg6's first investment in the business.

Company
Founded in 1979 and headquartered in Datchet, Berkshire, Iris develops accountancy and operational software for clients including payroll bureaus, private sector businesses and education establishments.

According to publicly available documents, the business generated a turnover of £113.1m in the year ending in April 2017 with EBITDA of £52.7m. It has since completed the acquisitions of Star Computers and Contact Group.

People
Hg – Nic Humphries (senior partner).
Intermediate Capital Group – Benoit Durteste (chief investment officer).
Iris Software Group – Kevin Dady (CEO).

Advisers
Equity – DC Advisory (corporate finance); Linklaters (legal); OC&C (commercial due diligence).
Company – Arma Partners (corporate finance); Skadden Arps Slate Meagher & Flom (legal); Deloitte (tax); Bain & Co (commercial due diligence).

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