Business description
Founded in 1968 and headquartered in Wiesbaden, Germany, P&I (Personal & Informatik AG) supplies payroll and HR-related software to mid-market companies and the public sector primarily in Germany, Austria and Switzerland. P&I also serves customers across thirteen countries in Europe via its partners.

Over the course of more than four decades, P&I products have been enriched with information from the highly diverse tasks and best practices of more than 15,000 customers (of whom 3,900 are direct). The business offers software for the management of payroll, workforce, time management, human capital management and HR analytics.

It typically serves “Mittelstand” businesses with 200–5,000 employees, across a range of industries, as well as medium-sized and large public sector customers. It employs more than 400 people with offices in Austria, Switzerland, Slovakia and the Netherlands and it has partners in nine additional European countries.

The investment
The regulatory driven software space was first identified by HgCapital as an attractive sub-sector in 2002 and the investment in P&I followed a decade of tracking the business, enabling HgCapital to build a strong relationship with the business’ management over time and conduct thorough due diligence through the economic cycle. The investment in P&I is typical of HgCapital’s approach to sourcing, origination and the business model characteristics which remain HgCapital’s focus.

The business had seen strong operating performance with a historical 10-year track record of consistent revenue and EBITDA growth, with low sensitivity to economic market cycles. In December 2013, HgCapital, co-investors and the business’ management acquired 92% of shares in P&I from Carlyle. The implied EV of the business was €438.0 million.

The investment case
HgCapital continues to see attractive long-term growth in the European payroll and transactional HR sector for leading, innovative players. P&I displays specific characteristics that HgCapital looks for in its portfolio companies: a scalable business model with a broad, diversified customer base; strong customer loyalty; and a significant share of recurring revenues, driven by ongoing regulatory changes. As a driver of innovation in HR technology, P&I is highly rated among its customers for the quality of its products.

We also saw the opportunity to continue to develop P&I’s product offerings, including the addition of further Human Capital Management functionality, the strengthening of its recurring revenue base and the increasing adoption of its cloud service technology (P&I Big Data) into their customer base. There was also potential for small M&A opportunities in the relatively fragmented HR management systems, payroll, time management and expenses markets, both in the DACH region and internationally.

How HgCapital has supported P&I
With HgCapital’s support, P&I acquired a Swiss payroll vendor, Soreco HR, in 2015. In addition to growth and product development, HgCapital focused on strengthening P&I’s financial and operating reporting, as well as defining the company’s forward business plan.

The roll-out of Big Data was very successful with adoption rates of more than 90%, driving year-on-year growth in recurring revenue in excess of 6% in 2016 to 22% year-to-date FY2017. The move into Big Data has also had a positive effect on the operating efficiency of the business, driving increases in average sales licence revenue per employee and average consulting EBITDA revenue margin to 44% in 2017.

Performance improvement
Over our investment period, P&I saw compound annual EBITDA growth of 16% p.a. P&I continues to perform well and saw high single digit revenue growth, 22% growth in recurring revenues and 17% EBITDA growth over the 2017 financial year to date. This has been driven by strong sales to both existing and new customers with growth in high margin revenue streams (e.g. licence, maintenance and Big Data) leading to margin expansion. In addition, P&I has made significant progress in shifting its customer base to its cloud service technology, P&I Big Data, which is expected to further improve efficiency and scalability for both P&I and its customers.

Exit and refinancing
In January 2016, we completed the refinancing of P&I, returning 60% of the original investment made in December 2013 to clients. In November 2016, we completed the sale of P&I to a company backed by funds of Permira, an international investment firm. The combined return represents an investment multiple of 2.3x cost and a 37% gross IRR over P&I’s holding period to date.

HgCapital has retained a minority position of €70 million in P&I; the Company’s share of this is valued at £6.6 million.