We start this new year 2019 with an entry from business valuation. We talk about FinTech Apptio and its recent acquisition by Vista Equity Partners.
The FinTech sector
The FinTech sector is developing at high speed due to the trend towards disintermediation of financial services and the advantage of arbitrage. These aspects allow these financial institutions to be less heavily regulated, helping to reduce costs, which, together with the immediate and remote availability of access to services, is attracting more followers.
Investment in this new business model seems to be trending upwards concentration of major players in the sector, which are receiving investments in excess of €100M. Specifically in 2018 there have been more than 35 investments above this amount in companies in the sector.
This trend can be seen in the growth of FinTech investments in Europe of 121% YoY, and expected higher growth in the coming year, due to the concentration within the sector and the need for more capital to grow in size and become profitable.
Apptio's business model
Apptio is a FinTech developed for companies that supports them in economic and budgetary planning in the IT sector.
Apptio's business model is based on the charging for subscriptions and individualised services to which they offer the largest database on the possible operational costs of different technology applications, implementation or use of the cloud, CRM costs, ERP, energy use in different applications, cybersecurity costs or costs related to reporting.
The company has more than 600 customers, including more than a third of the Fortune 100 companies. It helps them to make the best financial decisions regarding technology investments or expenditures.
Apptio's financial performance
Apptio was born in 2007 thanks to a $7 million seed investment by Madrona Venture Group, and has been able to grow rapidly thanks to seed investments it has received, helping to scale up the business.
The company is growing in revenue higher than 20% CAGR in the last 5 years, with 2017 being the year in which its turnover grew the least, due to lower growth in subscription revenues.
Even so, the turnover of individualised professional services managed to grow by 10%, well above the records of the last 3 years, when it grew by around 5%, thus increasing market flexibility by not relying so much on subscriptions.
The same positive trend can be seen in EBITDA. This is a sign of a positive economic-financial situation in the near future, thanks to the good trend of the company and the expected growth of the sector.
Regarding the company's indebtedness is hardly significant, due to high liquidity. The company's cash position is much higher than its financial debts.
Apptio - Financial Developments | |||
In thousands of $ | 2017 | 2016 | 2015 |
Revenue | 188.519 | 160.569 | 129.251 |
% Growth | 17,41% | 24,23% | 21,23% |
EBITDA | -26.239 | -28.151 | -39.579 |
% Growth | -6,79% | -28,87% | – |
EBITDA/Revenues | -13,92% | -17,53% | -30,62% |
EBIT | -26.239 | -28.151 | -39.579 |
% Growth | -6,79% | -28,87% | – |
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Net Bº | -25.621 | -31.553 | -41.007 |
Vista Equity Partners acquires Apptio
On 11 November 2018, it was announced that Apptio had been acquired by Vista Equity Partners, the US private equity fund dedicated to investing in software, data and technology companies, for a total amount of $$1.9bn, which represents a multiple over revenues of 10x.
The payment of this multiple is derived from the company's growth potential in the current environment, in which more and more companies are jumping into the digital business and/or need to adjust their budgets, with Apptio being one of the most reputable businesses with the largest customer base in the sector today.