FORGET RECESSION. THERE’S MONEY OUT THERE. JUST ASK ACONEX
By Paul Ryan, Editor, Anthill Magazine
“We feel like the little ray of sunshine. The last thing to fly from Pandora’s Box,” jokes Aconex Chairman Martin Hosking by phone. He’s sitting beside Aconex CEO, Leigh Jasper, who laughs along knowingly. The two men have reason to smile.
Just when it seems as though financial commentators and politicians everywhere have morphed into an army of Chicken Littles stealing wide-eyed glances at the falling sky, Aconex - the Australian information management company servicing the global construction and resources markets - has secured a $107.5m investment from US private equity firm Francisco Partners.
The capital injection will be used to expand Aconex’s product suite, with 50 new software engineers to be hired. The money will also be used to expand into new markets and pursue acquisitions in preparation for a future IPO.
“We’re not looking to break into any dramatically new business but rather add new modules and functionality around the core system,” says Jasper. He would not reveal the percentage of equity surrendered in the deal, saying only that Francisco Partners took less than a controlling interest.
Hosking believes the interest shown in Aconex by several US-based private equity firms demonstrates that there is still plenty of money and appetite for Software as a Service (SaS) companies that are not over-exposed to a single geographic segment.
“We’ve been hearing a lot lately about how the world is heading into global recession. It’s simply not true,” he says. “The European market, the US market and parts of Asia have definitely been heavily hit, but the market is much more global than it has ever been. The markets that we are exposed to, particularly across the Middle East, North Africa and parts of Asia, are not entering a recession. They are doing very well…. The fact that a US private equity firm is prepared to invest so much in an Australian company demonstrates that it is a very global market.”
While investment dollars for early-stage companies are likely to dry up in the coming months, global private equity firms are still eyeing off later-stage, cash-flow positive companies. US firms such as Francisco Partners don’t rely on debt finance; they invest equity money, accessed from well-capitalised institutions such as 401Ks (US retirement funds) and endowments. For these firms, companies like Aconex have become more attractive because they are already successful in markets with limited exposure the carnage on Wall Street.
In February, Francisco Partners purchased Queensland software house Mincom for $315m. And if you were wondering about the bona fides of Francisco Partners, it is enough to say that one of its main investors is Sequoia Capital, the most prescient technology investment firm around. Sequoia has invested in some of the biggest names in tech: Apple, Electronic Arts, Cisco Systems, Oracle, Google, LinkedIn, Meebo, Paypal, Yahoo and YouTube.
This is an exciting deal for Aconex, which took out the Global Growth Award at Anthill’s 2007 Cool Company Awards. And it’s a deal that should give all Australian entrepreneurs cause for optimism in these uncertain times.
Tags: aconex, Deals, economy, investment, private equity
September 25th, 2008 at 9:57 am
This goes to show the money is out there for the right opportunities!
Can anyone advise the valuation / percentage equity involved?
September 29th, 2008 at 10:58 pm
Rumour is that Francisco got around 35% of the company which would put about a $300m valuation on Aconex.
Everyone is running around patting themselves on the back with this deal. One look at the last set of financials from Aconex would make you wonder. Their cash burn rate is very high and their revenue recognition formulas are questionable - they “realise” revenue when a contract cannot be cancelled, but they do not seem to “realise” any costs. They appear to be bleeding money in the Middle East (their largest market) which is a clear sign that they’ve bought market share. The problem with that is their product isn’t “sticky” - at the end of the project, tthey have to compete to win their next gig. They are signing up clients, but more than one builder has recently told the client if they are forced to use Aconex, then the client must assume the risks which is a concern.
Much more to come in this market space, watch.