PE firm exits tech company with 6x return in less than four years

Richard Pennington

YFM Equity Partners has sold its stake in Manchester-based FourNet, the digital transformation and customer experience specialists whose clients include 10 Downing Street, the Cabinet Office, HM Treasury and the Bank of England.

The secondary buyout deal, backed by Manchester-based Palatine Private Equity, generates a 6x return for YFM’s investors in less than four years.

YFM had a minority shareholding, and Palatine has now acquired a majority stake in FourNet.

FourNet was founded in 2005 by chief executive Richard Pennington, operations director Frank Jennings, chief technology officer Mike Jervis and sales director Steve Tyrrell.

Leeds-based YFM invested in September 2017, to back the four founders and help them continue the strong growth of the business.

In addition to YFM, two founding shareholders, Frank Jennings and Mike Jervis, will also exit the business, with technology sector veteran Iain McKenzie continuing as chair of FourNet, while Tony Dickin, Andy Strickland and James Painter from Palatine will work with the company going forwards. Tom Hustler was also a key part of the deal team.

Headquartered in Manchester, and with offices in London and Burton-on-Trent, FourNet has annual revenues of £38m and employs more than 100 people.

The company has around 200 customers, with a significant number in the public sector.

Reflecting its strong three-year growth rate of nearly 55%, FourNet featured in the Sunday Times Tech Track 100 for 2020, the index of the 100 privately-owned technology companies with the fastest-growing sales.

The company has also been acknowledged as one of the Best Tech Companies to Work for in Britain.

Dan Freed, partner at YFM, said: “Four years ago, we backed FourNet as a niche business with a strong reputation in a specialist and rapidly growing market, knowing that, with our support, they could continue to thrive. They are exactly the type of business and management team that YFM looks to invest in from our managed funds.

“Over that time, we have worked closely with the management team to pull together a longer term plan of how to scale people and processes as they expand.”

He said FourNet has delivered strong increases in revenue and profits and been at the forefront of technology change in the market, delivering complex solutions to its impressive customer base: “There has always been good alignment between us and we’ve really enjoyed working with Richard and the team. The business is now very well positioned to move on to the next stage of its growth and we wish them every success for the future.”

Richard Pennington said: “The growth we’ve achieved since the YFM investment has put FourNet at the leading edge of a rapidly-developing sector.

“YFM have been a fantastic, supportive and flexible partner who have given FourNet the space to grow in recent years and particularly over the last year. As the FourNet team approaches the next stage in our development, we are in an excellent place from which to continue on our current strong trajectory.”

He added: “Our new partnership with Palatine further positions us as a prime player in the technology sector and we are delighted to be working with their team.

“The pandemic has been a catalyst for significant change in working practices and our industry over the past 12 months and fresh investment will enable FourNet to rapidly meet the changing needs of our customers, many of whom are critical to the UK’s success following the pandemic, and to build and acquire the additional capabilities that our customers require.”

He said Palatine’s investment will keep FourNet at the forefront of the industry and will also provide the fuel for the company to lead further change across the sector, while allowing it to capitalise on the rapid growth in demand for cloud, collaboration and managed service solutions.

Andy Strickland, senior investment director at Palatine, said: “FourNet is a highly respected, well managed business with a loyal customer base and we look forward to working with Richard and the leadership team to add further value and power its continued growth at a time of significant public sector investment in Cloud and IT infrastructure.

“We see significant opportunity for FourNet to strengthen its position in the market place as the go-to cloud services supplier to the public sector. Given our strong track record in the TMT sector and in IT, cloud and managed services in particular, we believe we will be able to assist management in capitalising on the market opportunity.”

He added: “As part of the strategy we will look at selected buy and build opportunities, but we also see great potential for organic growth. We also see a major opportunity to work with management to further develop the company’s already strong ESG credentials, an area where there is ever-increasing awareness and significance during the public sector procurement process. ESG is an integral part of the value-add proposition Palatine brings to the businesses it invests in.”

The shareholders were advised by investment bank GCA Altium and DWF (legal). Palatine was advised by BDO (corporate finance), Gateley (legal), Spectrum (banking), RSM (tax) and Intechnica (IT). Debt was provided by Kartesia.

James Craven, managing director at GCA Altium, said: “FourNet is an industry leader with exceptionally strong organic growth. The pandemic has increased the need for FourNet’s mission critical services as its mainly public sector clients have had to digitally transform and find innovative ways to collaborate in this new world. It has been a real pleasure working with Richard and team. We wish them all the best for their next stage of growth.”

DWF partner Jonathan Robinson, who led their team of senior associate Will Munday and solicitor Lara Benson, said: “We are delighted for the FourNet selling shareholders. Having advised on the YFM investment four years ago, it is a pleasure to now support the shareholders of FourNet as they move on with this new investment by Palatine. We wish them every success.”