BUSINESS DESCRIPTION

CogitalGroup is a 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. 40,000 (mostly SME) clients, over 125 offices and more than 4,000 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 satisfies several attractive business model criteria, including: a high share of repeatable revenue (more than 80%); high retention rates (c. 90%); opportunity for high margin improvement, 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, also on the opportunity for M&A.

WHAT HAS BEEN ACHIEVED?

The three businesses are currently undergoing significant integration. Priorities over the next six to twelve months will include: supporting Azets’ management to accelerate the level of near-shoring; supporting Azets’ management in M&A; supporting Blick Rothenberg in their near/off-shoring efforts; and building out the Baldwins M&A pipeline.

HOW IS IT PERFORMING?

All three business are trading in line with expectations.

Given recent trading, our valuation at 30 June 2017 has added an uplift of £1.7 million in the Company’s stake to the value of CogitalGroup.

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.

Sector Location Date of Investment Residual cost £’000 Unrealised Value £’000
Services UK Oct 2016 20,966
23,281