By Ana Almeida, Caroline Brandvold, Morrison Dobere, Angelina Gart, Nick Laterza, and Aanjay Patel (Cornell University); Aviral Jain, Keerthi Komati, Dhruv Kotecha, Ryan Luk (University of Nottingham)
Photo: Ilya Pavlov (Unsplash)
Overview of the deal
Acquirer: Blackstone Inc.
Target: Civica
Total Transaction Size: $2.5bn
Expected Closing Date: Second quarter of 2024
Target advisor: Arma Partners (financial), Travers Smith LLP (legal)
Acquirer advisor: Barclays and DC Advisory (financial), Simpson Thacher & Bartlett LLP (legal)
On November 22, 2023, Blackstone, the world’s largest alternative asset manager, announced its intention to acquire Civica, a leader in public sector software solutions, from Partners Group, a Swiss-based private equity firm. The financials of the deal were not officially disclosed, however it is estimated that Blackstone will be purchasing the U.K.- based software developer for roughly $2.5bn. Civica was previously acquired by Partners Group for $1.3bn in 2017 and this deal is expected to close in Q2 2024, pending regulatory approvals.
Blackstone believes its prior experience in the software space will help enable the firm to contribute significantly to Civica’s future growth. This transaction comes at a time when the aggregate value of private equity deals has been declining, especially in Europe, which has faced a 57% drop over a one year period. This plummet in buyout activity is mainly due to volatile markets and higher interest rates, which make borrowing more expensive for investors. However, there are signs for a growth in deal making as equity markets have started to recover and interest rates may soon stabilize as inflation pressure eases.
“Civica is a leader in the ‘GovTech’ space, with an excellent brand and an enviable market position and we are excited to be partnering with a stellar management team to help the business in this next phase of growth. This investment is a testament to our long-standing software experience, a significant focus area for the firm globally, and builds on our strong track record of investing here in the UK” - Jonathan Murphy, MD (Blackstone) & Miguel García Gómez, Principal (Blackstone)
Company Details (Acquirer - Blackstone)
rBlackstone Inc. is the world’s largest alternative asset manager, with $1 trillion AUM. Founded in 1985 by Stephen A. Schwarzman and Peter G. Peterson in New York City, Blackstone now has an operational presence in the Americas, Europe, and Asia Pacific. The business is organized into four segments including Real Estate, Private Equity, Credit & Insurance and Hedge Fund Solutions, with its private equity business being one of the largest investors in leveraged buyouts in recent decades. Blackstone currently manages about 12,500 real estate assets and 250 portfolio companies, generating over $321 billion in gains for its investors.
Founded in 1985, headquartered in New York, NY USA
CEO: Stephen A. Schwarzman
Number of employees: 4700
Market Cap: $133.7bn (as of 01/12/2023)
LTM Revenue: $8.2bn (as of 30/09/2023)
LTM EBT: $3.5bn (as of 30/09/2023)
LTM P/E: 48.3x
LTM P/BV: 10.2x
Recent Transactions: Acquisition with Vista Equity Partners of Energy Exemplar (October 2023); $4.6bn acquisition of Cvent (March 2023); $359mn majority stake acquisition of R Systems (Nov 2022)
Company Details (Target - Civica)
Civica has grown to a diverse team of around 5,500 colleagues and now stands as the UK’s leading software company, currently offering its services in 8 countries including the UK, Ireland, Australia, New Zealand, India, Singapore, the United States, and Canada. It has a very diverse range of services, including workflow and automation, risk and compliance, workforce management, financial management, and data analytics. The company’s commitment to delivering a strong quality of services is reflected in its high retention rate of customers, who range from government entities to health, social care and education providers. Civica currently supports over 7500 groups in various sectors, with 6000 being schools/ colleges and 800 being local councils.
Founded in 2001, headquartered in London, UK with regional head offices in Australia, Singapore, and North America.
CEO: Lee Perkins
Market Cap: N/A (privately held)
Total Revenue: $458.9M (as of 30/09/21)
EBITDA: $110.5M (as of 30/09/21)
EBITDA Margin: 24.1% (as of 30/09/21)
Gross Profits: $378.7M (as of 30/09/21)
Projections and Assumptions
Short-term consequences
The acquisition is likely to cause some short-term disruption over the next year as Blackstone and Civica integrate their business operations and organizational structures. There will likely be changes to the leadership team, consolidation of redundant roles and responsibilities, and rationalization of Civica's product portfolio and service offerings. Employees may experience uncertainty during this integration process, which could lead to higher turnover rates in the short term. However, Blackstone's extensive experience with integrating acquisitions should help smooth the transition. Within the first 6 to 12 months, we would expect to see the emergence of a new organizational structure and operating model that allows Civica to leverage Blackstone's financial strength and private equity expertise to maximum advantage. There may also be a streamlining of operations, supply chains, and production capabilities to eliminate redundancies between the two companies in areas like IT, customer service, and administrative functions. Cost savings from consolidated operations and increased efficiencies could boost Civica's profit margins in the near term. Blackstone will also likely accelerate product development cycles and fund expansion into new geographies and market segments where Civica has not previously competed. However, regulatory approvals could slow the pace of integration in some international markets.
While the merger integration process will be disruptive over the next year, by the end of 2024 we would expect Civica to be in an improved competitive position with a wider reach, lower costs, and better capitalization to challenge larger technology providers in the public sector and education markets. The strategic rationale for Blackstone is evident, even if the consolidation journey has some short-term bumps along the way.
Long-term Upsides
This acquisition represents Blackstone’s strategic step to explore long-term possibilities of underexplored government markets. With Blackstone’s extensive network across various regions, it empowers Civica to explore new geographic territories and establish new partnerships, tapping into markets that are ready for digital transformation and GovTech opportunities. In the long-term, by leveraging Blackstone’s global presence and connections, it enables Civica to introduce tailor-made solutions that cater to diverse needs of governments, thereby broadening its product spectrum and global influence.
Secondly, Blackstone's proven expertise in strategic management and value creation is set to significantly amplify Civica’s industry standing. Their experience in nurturing customer-centric operations in its portfolio companies suggests a promising future for Civica. This acquisition will undoubtedly refine Civica’s operational processes, optimization of resource allocation, and ignite innovation in product development. These enhancements not only cements the relationship with existing clients but also positions Civica attractively for new client acquisition.
Thirdly, this synergistic relationship between Blackstone's strategic acumen and Civica's technological expertise is anticipated to foster sustainable growth. It will bolster Civica’s competitive edge and solidify its leadership in the dynamic GovTech sector. With Blackstone's backing, Civica is expected to invest more aggressively in research and development, embrace emerging technologies, thereby redefining its role as a leader in providing cutting-edge solutions to government clients worldwide.
Risks and Uncertainties
This acquisition bears significant uncertainty predominantly associated with regulatory barriers. As the deal is set to be completed in Q2 of 2024, it is still subject to regulatory approvals which could cause issues due to recent, tougher than expected regulatory stances. Unpredictable and unexpected intervention from competition watchdogs, such as the US Federal Trade Commission, arises from new regulations regarding “merger-review rules” enacted in June 2023. These rules consist of antitrust regulators requiring private-equity firms to turn over much more information about potential mergers, including larger amounts of detail about past deals, investors and capital requirements of the merging firm. Subsequently, there are risks that the proposed acquisition may not be completed at all due to these increasingly demanding rules which Blackstone may be unable to meet. This could ultimately adversely affect Civica’s business, sending the price of Civica’s common stock tumbling.
Furthermore, uncertainties regarding business relationships and managerial issues exist in almost every acquisition seen today. However, Blackstone and Civica may face these issues more intensely than any other merged entity. This is due to Blackstone’s history of 184 acquisitions including Spanx, Bumble and Burger King. The aggregation of these acquisitions exposes Blackstone to a large number of organisational issues and may prevent cost and revenue synergies from reaching their fullest potential.
Additionally, the multitude of acquisitions that this private equity giant has taken on have not been fully successful. In 2017, Blackstone’s acquisition of Fintyre proved to have poor due diligence as Blackstone still pays the price today after Fintyre collapsed less than a year later. The issues stemming from Blackstone’s previous acquisitions could negatively impact their business relationship with Civica.
“At Civica, our aspiration is to be a ‘GovTech’ champion, providing software that supports the needs of citizens and those that serve them. In partnership with Partners Group, we have significantly transformed our offering and increased growth momentum across cloud, digital enablement, software innovation, and data analytics…We now have over two decades of growth to build on and look forward to the next phase of our journey,” - Lee Perkins, CEO (Civica)