HelpSystems Has A New Number One Investor

March 12, 2018 Alex Woodie

A controlling stake in HelpSystems is set to be sold to HGGC, a Silicon Valley private equity firm with $4.3 billion in assets. The deal, which is scheduled to be completed by the end of the month, was presented as a recapitalization of HelpSystems and a ratification of its on-going strategy to grow the business through acquisitions and organic growth.

The deal will keep current owners of HelpSystems – including H.I.G. Capital, Split Rock Partners, the software company’s management team, and employees of HelpSystems – on board as owners under the company’s new shareholder structure. HGGC‘s piece of HelpSystems will be greater than 50 percent, which will give it a controlling stake in the Eden Prairie, Minnesota-based software company. Pamplona Capital Management also took a stake in HelpSystems. Specific terms of the deals were not disclosed.

There will be no change in HelpSystems strategy, says company chief executive officer Chris Heim, a serial entrepreneur who came on board during the firm’s last go-round with private equity. “This is more of a statement about the strength of the company and investor interest in that, and the opportunity for HGGC to place an investment here,” Heim tells IT Jungle. “A broad capital base is a positive as we do future acquisitions.”

HGGC characterized the investment as a recapitalization, but that doesn’t mean there was insufficient capital to begin with, Heim says. “We were absolutely profitable,” he says. “This is more about investors swapping a portion of investment out for another investment, and an opportunity to put some money in the hands of employees, many of whom turned around and invested again.”

The deal started taking shape in October, when HelpSystems existing ownership first met with HGGC. The folks at H.I.G. initially were hesitant, Heim says, because the previous deal had been completed so recently. But a persistent effort by HGGC eventually changed their minds, and the ownership group welcomed HGGC in.

“They’re an extremely supportive group,” Heim says of HGGC. “They say ‘More of the same, more of the same, more of the same.’ It’s taking great care of your customer on IBM i and other platforms, it’s creating great products, it’s doing acquisitions where customers want us to do acquisitions. So the strategy remains the same, the management team remains the same.”

“We love classic partnership deals like this,” HGGC co-founder and chief executive officer Rich Lawson stated in a February 26 press release announcing the deal. “We’ve had great success partnering with respected private equity firms in the past, and we’re excited to work with H.I.G., management, and the other investors to build on the tremendous success HelpSystems has achieved over its history, and to accelerate its more recent growth and solutions expansion.”

In the HGGC boilerplate, the Palo Alto, California-based private equity firm describes itself as a practitioner of the “advantaged investing” model, whereby it can “acquire scalable businesses at attractive multiples through partnerships with management teams, founders, and sponsors who reinvest alongside HGGC, creating a strong alignment of interests.”

That approach to working with existing parties appears to jibe with the long-term vision that Heim and other principals have in the future of HelpSystems. “They’re going to be hands on, but they’re not going to change the strategy and they’re not going to change team,” he says. “There are some PE guys out there that say ‘You put in this playbook or else.’ These guys are not that . . . . They’ve been super-impressed with the company.”

In a Reuters story on the deal that referenced unnamed sources “familiar with the matter,” the value of HelpSystems was pegged at $1.2 billion, which would have given HelpSystems vaunted title of “unicorn,” which is slang for a private company worth more than $1 billion. When H.I.G. took its stake in HelpSystems in 2015, Reuters reported the company was valued at around $700 million, which equates to about a 70 percent increase.

Heim threw cold water on the $1 billion-plus unicorn speculation. “That was wrong. Price isn’t disclosed, but I’ll tell you that’s wrong,” he says. However, Heim did say that the 70 percent rate of growth was more or less correct. “We’ve had 7 percent organic growth over last three years. Both the IBM i side of the business and other platforms are growing,” he says.

Thanks to numerous acquisitions over the years, HelpSystems has grown considerably. It now has 13,500 customers, nine offices, and more than 600 employees working around the world, according to a February 27 story in the Minneapolis/St. Paul Business Journal. That story also cited a Moody’s report that pegged HelpSystems pro forma revenues at about $160 million for the 12 months ending June 30.

This is the fifth change of ownership for HelpSystems in 13 years. H.I.G., which is based in Miami, Florida and has $24 billion in assets, bought a controlling stake in HelpSystems from Boston, Massachusetts-based private equity firm Summit Partners back in August 2015. Summit Partners, which now has $20 billion in assets, originally bought the company in 2005, and then turned around and sold it two years later to the $12-billion equity firm Audax Group, which is also based in Boston. Audax sold the company back to Summit Partners in the spring of 2012, and Summit held the company until it agreed to sell it to H.I.G. in 2015.

This was the first time that Split Rock Partners, an Eden Prairie, Minnesota private equity firm with $1 billion in assets, has been connected to HelpSystems in public. Heim says Split Rock is a firm that he and CFO Dan Mayleben have worked with on previous equity deals. According to the Split Rock Partners website, the firm invested in HelpSystems on May 12, 2014.

HGGC’s February 26 press release that announced the deal mistakenly refers to Split Rock Financial as a past and current investor in HelpSystems. However, Split Rock Financial Group is a Maple Grove, Minnesota-based wealth management company for individuals and businesses, not a private equity firm. (There’s Split Rock Lighthouse in Northern Minnesota, making it a popular name in the state.)

It’s interesting to note that one of HGGC’s principles is Steve Young, the great San Francisco 49ers quarterback and MVP of Super Bowl XXIX. Young has taken an active role in the HelpSystems investment, as has the entire HGGC staff, Heim says.

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