The Carlyle Group LP; market cap (as of 7/11/2014): $9.08bn
The Carlyle Group LP; AUM (as of 30/09/2014): $203bn

On November 5, a consortium led by the global asset manager The Carlyle Group announced the acquisition of Dealogic, a provider of software and data platforms to investment banking industry, from its management and founders in a $700m deal. Carlyle is partnering with strategic co-investors Randall Winn, co-founder and former CEO of Capital IQ, a competitor data provider, and the financial publisher Euromoney Institutional Investor Plc. who will invest $59.2m for a 15.5% stake, thus gaining a seat on Dealogic’s board together with a 20% of the voting rights.

The consortium’s acquisition offer consists of two alternative buyout schemes. Under the “Cash Offer” plan, the buyers would simply pay $12.0816 in cash for each Dealogic share. The alternative “Partial Share” plan would instead allow Dealogic investors to receive one share in the bidding vehicle for every six Dealogic shares they hold, plus $10.0680 in cash for every share. The equity financing for the deal is provided by the Carlyle Fund while the debt financing will consist of a new $385m credit agreement arranged by JP Morgan, Barclays and Deutsche Bank, comprising a $335m senior secured term loan and a $50m senior secured revolving credit facility. The aggregate value of the deal is thus approximately $700m which represents a 10.5x multiple of the company’s $66.7m trailing EBITDA. Even though this multiple is relatively high for the buyout industry, it is by no means a premium to the industry average. According to StarMine, an investment research firm, recently-listed Markit has a 10.3x trailing EBITDA multiple, while FactSet, another strong competitor, fetches a multiple of 15.8x to its last year’s EBITDA.

Founded 30 years ago and based in New York, Dealogic provides data, analytics and capital markets software for financial institutions. The company serves more than 500 clients, among which all of the largest investment banks. After going public in 2004, Dealogic, became private again seven years later due to a low market valuation that, according to the company, did not reflect its growth potential. In 2013, the company reported revenues of $152.3m and an adjusted EBITDA of $66.7m. Tom Fleming, the current chief executive who joined Dealogic in 1991, stated that “Dealogic fits perfectly with the Carlyle model of investing in strong businesses and helping them considerably accelerate their growth and development”.

Founded in 1987 and based in Washington D.C. with offices across North America, Latin America, Europe, Asia and Africa, The Carlyle Group is an investment firm operating in private equity, real assets, market strategies, and fund of funds with approximately $203bn of assets under management as of September 30, 2014. The acquisition of Dealogic is in line with the recent trend that shows an increasing interest of private equity firms for companies operating in the financial research sector. Indeed, among the most recent comparable transactions we recall the £624m acquisition of Mergermarket completed by the private equity firm BC Partners, and the Blackstone Group and Goldman Sachs merchant banking division acquisition of Ipreo Llc., a provider of market intelligence, data and technology to participants in global capital markets, from Kohlberg Kravis Roberts, which retained a minority stake in the company. Moreover, according to Dealogic itself, there were $29bn of technology deals that private-equity firms have sealed so far this year, making financial technology the most active sector, exceeding the $19.8bn of deals in real estate and the $18.1bn in professional services transactions.

The reason behind the strong interest in this kind of companies relies largely in the strong and stable cash flows generation arising from the recurring nature of subscription revenues, which allows the service of a high level of indebtedness. Indeed, in 2013, Dealogic revenues grew by 17.5% up to $152.3m, mostly driven by increased transaction revenues from strong equity capital market activity and the continued growth in the underlying subscription revenues. As a consequence, the company was able to produce positive free cash flows of $36.6m in 2013 (ca. 75% operating profit cash flow conversion rate), up from $23.1m the year before. The company also reported a healthy EBITDA margin of 43.8%, in line with its closest competitors.

J.P. Morgan Cazenove and Barclays are acting as financial advisers to Carlyle, while Dealogic is advised by Investec. The deal is subject to regulatory approval and it is expected to close by December 2014.

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