Yesterday we announced one of our largest investments to date -- the acquisition together with Carlyle's European technology fund of FRS Global, a subsidiary of US-listed S1 Corp. FRS is an established vendor of compliance and analytics software to financial institutions worldwide.
This is by my count the 15th 'pure' growth equity deal in the European tech markets since the beginning of 2005. What I call pure growth equity is a first round of institutional capital of more than €15m and less than €100m. Other interesting deals of this type include Actix (by Summit Partners), GFI Software (by Insight Venture Partners) and UC4 (by Carlyle). For a list of all the growth equity deals I've identified since early 2005, download growth_equity_deals.xls.
The reason I define this subset of technology investments as interesting is because there are more such deals happening now than at anytime before in the history of European tech investing. This increase is a result of changing market conditions both for the targets and for the investors.
Those technology companies that survived the industry shakeout began to emerge in 2004 stronger and more capital efficient. Many of those entrepreneurs were finally able to see beyond a six-month horizon and have confidence in their own ability to grow. This confidence allowed them to raise larger amounts of capital to expand, usually across borders.
On the investors' side, a number of European venture funds and US-based growth equity investors are seeking out larger investment opportunities in Europe in an effort to deploy their funds. They are becoming more flexible in their investment approach, enabling founders to sell down equity for example, and using more sophisticated deal structures including leveraged finance. Their presence in turn is triggering interest from ambitious management teams in midmarket technology companies.
To my mind this represents a welcoming maturation of the technology investment industry in Europe. I often hear about how European tech markets suffer from a lack of seed capital, lack of management talent, among other complaints. Seed capital seems to come and go with the markets (and there is a surprising amount of quasi-government funding available in most European countries). The availability of seasoned management teams can't really be rushed and will have to develop naturally over time.
But the advent of an active growth equity and buyout market is having the effect of injecting more ambition into European technology companies. The new investors are not settling for domestic leadership culminating in a listing on the local junior stock market; they want to build global market leaders. And that's good for the industry because it will create more examples for ambitious founders or professional management teams in later-stage European technology companies.