Horizon Capital clinched a 5-bagger with TotalMobile. Here's how

PE investment into VMS tends to get a bad rap from “permanent equity” aggregators - who paint it as a risky game of “hot potato”, with a short-term focus. 

Is it justified? Maybe. Maybe not.  

For a moment, let’s ignore the noise and the posturing and recognize the PE firms’ remarkable ability to generate value in lower mid market software buy-and-builds.

What exactly does this strategy entail?

It begins with a platform acquisition: typically an established player in a fragmented but lucrative market. More often than not, the target is a mature business ripe for transition from perpetual licence towards subscription-based revenue. A manoeuvre that lifts underlying growth by several percentage points.

Next, bolt-ons. 

PE firms approach buy-and-build in a highly systematic manner, having screened the market for bolt-ons before the platform deal is closed. That way, they can execute on a “rapid fire” M&A agenda before competition wakes up. 

Finally, when the buildout is complete and metrics have stabilised, the rollup is sold - ideally at a significant premium to the invested capital.

This exact playbook was deployed by Horizon Capital (formerly known as Lyceum), a British buy-and-build specialist, with TotalMobile, a field service management software vendor. Upon exit (to another PE firm), Horizon achieved a 4.6X MOIC & 38% IRR.

Of course, returns like these don’t happen by chance. Horizon is highly skilled in the field of buy-and-build, with a proven track record of identifying, acquiring, and nurturing managed services businesses. Notable acquisitions include:

In this article we break down:

• Horizon’s investment thesis for the mobile workforce market and TotalMobile specifically

• TotalMobile’s financial metrics before, during - and after Sponsor investment

• Horizon’s value creation playbook - in 6 steps

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