BUSINESS DESCRIPTION

Headquartered in Berkshire, IRIS is a leading provider of business critical software and services to the UK accountancy market and payroll applications to key business segments, including the UK general practitioners’ market.

WHY DID WE INVEST?

HgCapital has been an investor in IRIS since 2004, retaining a minority stake following its sale and merger with CSH in 2007 and becoming a majority investor again in 2011, when we separated the two businesses. IRIS is one of the earliest examples of our focus on business critical software firms operating in attractive, predictable end markets. IRIS operates a business model with over 80% of revenues coming from subscriptions, and high customer retention rates, driven by consistent regulatory updates and additional features as part of their subscription. The investment decision was based on the potential for organic growth and acquisition-led consolidation opportunities in the sector.

HOW DO WE INTEND TO CREATE VALUE?

The company is achieving strong organic revenue and profit growth through a combination of market share gains, price optimisation and the ongoing development of new solutions to sell into the existing customer base.

Furthermore, the UK accountancy and SME software markets remain fragmented, offering additional acquisition opportunities. IRIS has always been at the forefront of providing the most innovative products to its customers and will continue to invest in new technology to meet all of its customers’ needs.

In addition, we think there is substantial upside by developing or acquiring SaaS products to target adjacent markets.

WHAT HAS BEEN ACHIEVED?

IRIS has been successful in broadening its addressable market by expanding its offering, both by organic product development and by acquisition. The company has also successfully established a Cloud Division to sell SaaS products to UK accountants and SMEs. In 2016, IRIS acquired Octopus HR and PS Financial, further broadening its offering.

In August 2015, IRIS was refinanced on the back of its strong trading performance.

In December 2016, HgCapital agreed to purchase a further minority stake in IRIS from Lloyds Development Capital for a total consideration of £29.7 million.

HOW IS IT PERFORMING?

IRIS is a business which has been able to maintain strong levels of revenue, EBITDA and cash flow growth across market cycles, with the annual EBITDA margin consistently close to 50%, excluding the investment in the Cloud Division. The Cloud Division continues to receive significant investment, as we believe this is an attractive market with long-term growth potential and strategic value. Over the last twelve months IRIS has delivered double digit revenue and EBITDA growth.

The Company’s valuation of its stake in IRIS has seen an increase of £11 million over the first six months of 2017, driven by continued strong trading and high cash conversion.

HOW WILL WE CRYSTALLISE VALUE?

IRIS would be an attractive acquisition target to a financial buyer, due to its strong organic growth, margins, cash conversion and recurring revenue. It would also represent a strong strategic fit with a number of trade players.

Sector Location Date of Investment Residual cost £’000 Unrealised Value £’000
TMT UK Dec 2011 26,109 75,362