The Big Deal: The hefty technology deals flying under the radar
Exploring London’s PE and M+A deals
If private equity is often a misunderstood branch of the genus capitalism, the same goes double for technology buyouts, which are treated like Marmite by a London media that either loves or loathes them. Most such deals, unless they involve tech darlings, get ignored utterly.
Yet look under a few stones in London and there they are, swarming like ants – tech deals of all shapes and sizes covering everything from microchips to micro-blogging, and medical services to media management.
Take the £8m sale on February 3 by Foresight Group to Forward Internet Group (FIG), of online action-sports publisher Factory Media.
Apart from their companionable and headline-friendly alliteration, the three firms also share London-region origins. Factory, whose 25 websites include Snowboarder and Surf Europe, is based in the meatpacking district of Smithfield, five miles as the wolf runs from FIG, based in hipster-friendly Camden Town.
Foresight, another venture capitalist based in the pretty town of Sevenoaks, a half-hour away by train, completes the triumvirate, highlighting the creativity of capital in London, and the importance of venture capital money to the city’s tech scene. Foresight more than doubled its initial investment in Factory, which gets money to grow and a new capital-rich, media-focused owner.
Funds are also being deployed creatively, to shake up stodgy old firms with untapped potential. Technology group Onyx, a data recovery expert based in Stockton-Upon-Tees, was bought last October by City-based Isis Equity Partners (IEP) in a £27m management buy-out (MBO).
Onyx, chief executive Neil Stephenson announced on 3 February, has a £15m warchest with which to buy data-storage and cloud computing rivals in Europe and North America. Thus, London buyout capital is funding the growth of a rising British firm with 120 staff and more than 2,000 customers.
IEP’s £238.5m ISIS IV LP fund, backed by HSBC Leveraged Finance, is also funding the £46m MBO of another British firm, Autologic, which provides diagnostic (problem-solving) software to the auto industry.
Tech deals come in all flavours yet few, oddly, conform to the specialist taste of the mainstream media. If a rising social networking site based in the outskirts of London were on the slab, with a targeted acquisition price of around £450m, it would be on the cover of most major newspapers.
Yet the decision by HgCapital, an Anglo-German buyout specialist with offices in London and Munich, to sell out of SHL, a Surrey-based specialist in psychometric testing, for exactly that amount, gathered only a few column in the financial press.
In an economy desperate not just to rebound but also to rebalance away from financial services, this ambivalence toward companies with a surfeit of potential yet lacking a perceived ‘X-factor’ may seem strange.
Both sides of this story should raise a cheer for London and its commuter belt. SHL, with sales of £130m in 2011 and growing at 10 per cent a year, helps 80 per cent of FTSE 100 companies with the expensive and often legally tricky job of finding staff and managers of sound mind and body.
HgCapital, headquartered near Tower Bridge, is a mid-market buyout specialist, channeling capital into larger SMEs, the Mittelstand area of the economy that fuels most jobs growth in both Germany and Britain. Morgan Stanley is handling the sale, which is expected to go through by March. What’s not to like?
That’s not to say that technology deals are entirely bypassing financial services, the industry that still drives the world’s most dynamic city.
America’s TPG Capital is buying London-listed GlobeOp, which provides risk reporting services to hedge funds, for £508m – the first British deal by the Fort Worth-based buyout giant since it opted not to buy troubled mortgage provider Bradford & Bingley in 2008. The deal was London in both location and feel, with TPG advised by JPMorgan Cazenove and Linklaters, and sourcing £185m in debt financing from Credit Suisse’s City operations.
At least this was a deal that was treated by the media with the respect it deserved. And in a city where the endless bashing of bankers has become both self-defeating and slightly sinister – a cross between the Salem witch trials and a splat-the-rat contest – TPG’s implicit endorsement of London’s long-term financial credentials surely can be no bad thing.