A London-listed investment firm is on the brink of winning a £1.2bn race to participate in Britain’s biggest-ever software takeover deal.
Sky News understands that Intermediate Capital Group (ICG) is likely to strike a joint agreement to buy Iris, which supplies software to GP surgeries across the UK, in the coming days.
ICG, which reported strong growth in results announced to the City on Tuesday, will acquire Iris alongside a fund set up by the software company’s existing owner, Hg Capital.
The deal is expected to value Iris at more than £1.2bn and will follow a fiercely competitive auction that also included Omers Private Equity, an arm of a giant Canadian pension fund.
Sources said the takeover would involve a controlling stake in Iris being sold by current owner Hg from its existing fund to its new Saturn vehicle, which was set up to acquire stakes in large technology companies.
ICG and the Saturn fund are expected to own roughly equal stakes in Iris, which insiders say is poised for further strong growth in revenues and profits.
Sources said the deal would be one of the four largest software sector buyouts ever seen in Europe.
The auction has been handled by Arma Partners, a technology and media-focused investment bank.
Iris specialises in providing accounting and payroll software to private sector clients which include the Royal Opera House and Bellway Homes.
It has seen revenues and profits surge over the last decade.
Hg has held a stake in Iris for 14 years, seeing the company through a string of takeover deals which have netted it several windfalls.
The payday from selling Iris out of its existing fund will be by far its largest to date, having reinvested in the Berkshire-based company in 2011.
One source said a deal worth close to £1.3bn would return up to four times its investors’ original outlay.
Iris was expected to be an attractive takeover target because it enjoys profit margins of close to 50%, excluding investments the company has made in a new cloud-based software division.
More than 80% of its revenues are generated by subscriptions, meaning that it also benefits from predictable and recurring cashflows.
Hg is a long-term investor in the software industry, participating last year in a £4.2bn takeover of Visma, a Norwegian software company – the largest such transaction involving the firm.
The London-based buyout firm has enjoyed a string of successes investing in Software-as-a-Service (SaaS) companies, which have witnessed strong demand as technology becomes embedded in an increasingly broad array of sectors.
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While it has traditionally focused on so-called mid-cap companies, Hg’s chief executive, Nic Humphries, has identified an opportunity to invest in larger technology-based businesses.
Hg and ICG declined to comment on Tuesday morning.
Source: Sky