HgCapital Trust

Based in Oslo, Visma is the leading provider of accounting, resource planning, book-keeping and payroll software and services to 220,000 SME businesses in the Nordic region.

Research told us that regulatory-driven software for SMEs was a long-term, recession resistant growth area with an attractive business model:

• A fast growing marketplace with increasing penetration of business critical software
• High barriers to entry and sticky customer relationships due to the complexity of regulation across the SME marketplace
• This favours a subscription payment model so SME software businesses tend to have high levels of recurring revenue and high profit margins
   

Following our identification of Visma in 2003, HgCapital went on to make two successful platform investments applying this theme in IRIS Software and Addison Software, both of which grew organically and by acquisition and which delivered strong investments returns. So, by the time we came to put in an offer, we had knowledge, experience and confidence in our ability to evaluate the business and the investment opportunity.

We first met the CEO in 2004 and developed a good relationship with Visma’s management team, gaining a better understanding of the business.

Our sub-sector knowledge enabled us to combine the support of a trade partner with the flexibility of a financial buyer. As a result, we made a successful public to private offer in 2006 beating a competitive public offer from Sage plc.

Notwithstanding Visma’s position as a market leader in the Nordic region, with growing revenues, profits and consistent innovation, its profit margins were well below those of most of its competitors.

We understood that Visma’s low margins did not reflect the full benefits of integrating a series of acquisitions it had made. Moreover we could see that Visma was investing heavily for rapid growth. So as new business lines matured and integration work was completed we believed that margins would improve significantly, matching similar results from Iris and Addison.

In addition, Visma’s management team were very successful in finding and making bolt-on acquisitions, which gave us comfort that there was potential for significant growth.
 

Working closely with management to grow the business both organically and through acquisition:

• We helped to deliver more than 25 bolt-on acquisitions, particularly Accountview in 2006
• We worked to help develop a ‘lean process’ strategy and a move to fixed pricing for some customers, improving customer satisfaction, revenue visibility and margins
• We assisted in re-positioning Visma as a higher growth, web-based software as a service and BPO services company

Visma’s performance proved resilient through the recession, supporting our original hypothesis. At the end of 2009, Visma was more than one year ahead of our original plan. We feel that under HgCapital’s ownership Visma has become a stronger company during our four years of ownership, benefiting employees, customers and owners:

• EBITDA increased by over 265%
• Revenues rose by an average of 16% p.a.
• Margins improved from 14% to 20%
• Investment in R&D and new product launches had doubled
• Jobs had increased from 2,512 to 4,200
• Market share had increased in every part of the business every year

It is now one of the top three software and services companies in the Nordic region and one of the top ten across Western Europe
 

Visma continues to enjoy growing revenues with scope for further margin improvement and enhanced cross-selling so we decided to continue to hold a stake in Visma on behalf of our clients.

Our initial intention was to float the business but, instead, a process with a small number of potential PE suitors began in the summer of 2010. We aimed to select a new shareholder who would offer the best value to existing shareholders as well as help drive the future growth of the business.

In September 2010, KKR agreed to purchase 63.5% of our stake in Visma (HgCapital clients retained 16.3% of the total value of Visma). KKR’s global reach and understanding of the technology and services sectors will make them an excellent partner for Visma. Our aim is to at least double the value of this re-invested stake over the next 3-4 years as Visma continues to grow.