The Foundry is a leading global developer of computer graphics, high-end visual effects (‘VFX’) and 3D design software for the design, visualisation and entertainment industries. The company was founded in 1996 and is headquartered in London, with offices in Manchester, Los Angeles and Silicon Valley; it has more than 2,000 customers in over 100 countries and employs c. 270 people.
The firm has set the de facto standard in the film post-production VFX space with its NUKE product. In 2012, the company acquired MODO, a 3D modelling product that gained the company access to the gaming and design segments. Since the acquisition, The Foundry has grown MODO significantly by funding development projects in the design sector.
WHY DID WE INVEST?
HgCapital has known the company for several years and this investment is in line with our sector-focused approach of investing in leading global providers of vertical market application software.
The Foundry shares many of the characteristics that we look for, providing an excellent platform for growth across a diversified client base and a commitment to innovation.
The Foundry is rich in intellectual property and positioned well against favourable segment trends that could allow for an upside return to be achieved through a number of new business initiatives. We see potential from continuing to leverage world-class products in new segments.
HOW DO WE INTEND TO CREATE VALUE?
HgCapital will work closely with the management team to help the business accelerate its high rate of organic growth, in particular the ongoing development of disruptive technologies driving creative control and production efficiency.
We will also work with The Foundry, with the aim to identify value accretive M&A to support the business and its management in building a global software champion.
WHAT HAS BEEN ACHIEVED?
In December 2015, we appointed a new CEO and CFO to lead the business in its next phase of growth. We have also assisted the management team to refinance the £50 million bridge loan, which was used to finance the initial purchase of The Foundry.
HgCapital has supported management to implement new pricing and business models, launch a number of specialist products in the 3D design sector, improve the organization and processes of the sales function and assess potential M&A opportunities.
HOW IS IT PERFORMING?
In 2016, The Foundry’s revenues grew by 11% while EBITDA increased by 7%. The core NUKE business is performing in line with our investment plan, but existing non-NUKE products – particularly MODO - and new investment products are substantially behind our initial plan on both revenue and EBITDA contribution.
The Foundry is valued broadly in line with its initial investment value.
HOW WILL WE CRYSTALLISE VALUE?
We believe The Foundry will be an attractive acquisition target to both trade and financial buyers, given robust organic revenue growth, high EBITDA margins and large market share – particularly of its core NUKE product.
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|| May 2015