Unit4 moves on from Advent as TA Associates buys in at $2 billion valuation

Netherlands-based ERP vendor Unit4 reveals today that it has swapped one private equity investor for another, valuing the company at more than $2 billion. TA Associates, with additional investment from Partners Group, is buying out Unit4's former PE backer Advent International, which acquired the previously publicly-listed Unit4 for $1.6 billion in 2014. The fresh investment will be used to fuel growth through product development and acquisitions. As CEO Mike Ettling told diginomica in a phone call on Friday:

The access to capital is going to fundamentally be used to drive strategic acquisitions, to accelerate our growth primarily in North America. And then secondly, to continue investments in ERPx, but also accelerate the path on ERPx ... accelerating the product and what we can do and offer with the product to build differentiation for customers.

Unusually for this kind of transaction, Unit4's management team was in the driving seat in the search for a new investor, which began early January. Ettling says:

Advent never attended any sessions. It was our vision, our story. We went out to the market to talk to a dozen selected private equity funds.

The result of that search was a shortlist of investors who met Unit4's criteria — one that "really bought into" the management team and its vision of driving growth, says Ettling, based on the newly launched ERPx platform, to achieve a cloud valuation for Unit4. The deal with TA was signed in the early hours of Thursday. Here's how Ettling explains the choice of TA:

The number one criteria was finding a partner who really believed in the strategy and vision we set out. And I think the two critical pillars of that vision are North America and ERPx. So that was the first criteria, which was really important for us.

The second criteria was, a partner who really has demonstrated building value through growth over the years — not just having cut costs — and would be supportive of our acquisition strategy. We want to do more acquisitions, to build the business in the marketplace.

Thirdly, we were looking for a partner who had good pattern recognition. What I mean by that, has been in investments ... where their experience with that would simply help us avoid the unknown unknowns, in terms of how we scale and grow the business, and they could add a lot of value in that regard.

Focus on vertical market acquisitions

As for those acquisitions, the prime focus will be on vertical markets, particularly expanding into new sub-verticals or broadening Unit4's presence in the North American market. Ettling explains:

One of the things we're very focused on is how do we accelerate in different verticals, and particularly in geographies where we don't have strength in those verticals ...

We're now getting very focused on the sub verticals in those industries based on services — architects, construction, engineering, technology, and technology services. In some of those sub verticals, we may want to augment not-for-profit, higher education, and local government, particularly in the United States.

Other areas of interest for acquisitions will be expansion into ancillary products that work well alongside ERPx, or acquiring technologies that accelerate the cloud journey. Ettling elaborates:

We want to buy companies which accelerate our journey to the cloud, as opposed to take us backwards. So cloud businesses, vertical focus, and ancillary product. Those are the three themes which are most important to us.

The acquisition is now going through the various regulatory approvals and processes required before closing, which is expected in early summer. Getting to this point has been something of a whirlwind, as Ettling explains:

It's been a very intense and rapid process. But, you know the old saying, time kills deals. Doing it fast is always a better thing than dragging one's feet.

My take

When we interviewed Ettling a month after he took the reins at Unit4 as CEO, he told us:

I might need fresh capital along the way, and then I'll cross that bridge when I get into it ...

That bridge has now been crossed, and at a rapid clip. After seven years, Advent clearly felt the need to move on — according to Bloomberg, it was eyeing a possible sale to a SPAC last November, but that was not a prospect that would have appealed to Ettling and his team. The TA investment gives a fresh boost to Unit4's ambitions and a new runway to prove what the company can do.