CogitalGroup is a leading pan-European provider of regulatory-driven services to SMEs. Core services include accountancy, payroll and taxation. The business was formed from three cornerstone investments completed during 2016: (i) Visma’s BPO (‘Business Process Outsourcing’) business, active throughout the Nordics (now renamed Azets); (ii) Baldwins, based in the Midlands; and (iii) Blick Rothenberg, based in London. In total, the combined business operates across six countries, with c. 38,000 clients, over 100 offices and more than 3,000 employees.
WHY DID WE INVEST?
CogitalGroup continues the Services team’s record of investing in regulatory-driven businesses within HgCapital’s “sweet spot” business model focus.
We have been looking at the SME accountancy and advisory services sector for more than five years as it addresses several attractive business model criteria, including: a high share of repeatable revenue (>80%); high retention rates (c. 90%); high margin improvement opportunity, with the potential for efficiency gains through the use of technology, near-shoring and scale; a fragmented customer base; and fragmented competitive landscape, with significant M&A opportunities.
HOW DO WE INTEND TO CREATE VALUE?
We will focus on organic growth across the Group, continued evolution of the operating model, including increased use of technology and, lastly, M&A.
WHAT HAS BEEN ACHIEVED?
The three businesses are currently undergoing significant integration. Priorities over the next six to twelve months will include: the carve out of Azets from Visma Group in order to operate on a standalone basis and operational resourcing for scale at Baldwins.
HOW IS IT PERFORMING?
It is early days for this investment within the portfolio and, so far, all three business are trading in line with expectations.
Whilst new to the portfolio, CogitalGroup is valued slightly above cost, due to strong trading.
HOW WILL WE CRYSTALLISE VALUE?
We expect the business model characteristics of CogitalGroup to be appealing to a wide range of financial sponsors at exit. We also think an IPO is a possible exit strategy.