Aconex gets private equity injection

The Australian business press (eg: Melbourne’s The Age, Australian IT, MIS Australia, Smart Company Briefing) has been busy reporting news that Australia-based SaaS-based construction collaboration technology vendor Aconex has secured a AU$107.5m (£48.8m) private equity investment (see also Aconex news release and listen to ZDnet Australia podcast). Not since the reckless days of the dot.com boom have we seen a deal of this magnitude in the construction collaboration space – the last significant transaction was Autodesk’s 2006 acquisition of Constructware for US$46m (see post).

After Aconex sought expressions of interest from a number of competing investment businesses, US-based technology investor, Francisco Partners (which describes itself as “focused exclusively on investments in technology and technology-enabled services businesses”), was selected to make an investment, but “details of the deal, said to be one of the biggest of its type, were not released”.

Francisco Partners is taking a minority equity stake in the company but Aconex co-founder Leigh Jasper (now Aconex’s CEO*) declined to reveal its size: “We’re not disclosing the exact valuation on the business but suffice to say it’s a valuation position to take a $107.5 million position without overly diluting existing shareholders,” he said. According to Smart Company, the deal was approved at a meeting of existing Aconex shareholders on Friday evening; “The company has around 100 investors, mainly high net worth individuals and families and friends of Aconex executives” (Aconex was, of course, engaged in a protracted legal dispute with some of its shareholders that was eventually settled out of court in May this year). Silicontap.com said Francisco Partners would add two people to the board of Aconex (it currently has five members).

MIS Australia meanwhile speculated that the investment valued Aconex “at between AU$215m and AU$300m”. Aconex apparently posted revenues of AU$42 million (£19.1m) in 2007-08, so, if the valuation is accurate, it rates Aconex somewhere between five and 7.5 times revenues – not far short of the 7.6 multiple achieved by SaaS web conferencing business WebEx when it was acquired by Cisco Systems last year (see also my post speculating about 4projects’ valuation after its July 2007 MBO).

Aconex chairman Martin Hosking noted that Francisco Partners had experience in “assisting technology companies to structure and prepare for initial public offerings”. However, he told MIS Australia that the company was unlikely to raise further capital through private placements; instead, it may look to an initial public offering if it needed further funding to drive growth, “However, Aconex was not looking to list anytime soon.”

Francisco Partners has $US5 billion ($A6 billion) invested through its private equity funds. Among other software businesses, Francisco Partners has previously invested in Primavera (a US-based provider of construction-related software) and Mincom (a Queensland-based software house also active in the construction and resources markets).

Aconex said that in anticipation of the funding package, it had put together a team that was evaluating acquisition opportunities in the US and Europe. Leigh Jasper told Smart Company that the recent global economic slowdown could force some competitors on to the sale block. “It’s not about getting a cheap acquisition, it’s about getting the right acquisition,” he says. He nominated South America and Eastern Europe as particular expansion targets.

Aconex was also planning investment in product development to create complementary products on the Aconex platform, a process that it said could create about 50 jobs in its Melbourne software engineering unit.

[* Until recently, Leigh Jasper and Rob Phillpot were joint managing directors of Aconex. Rob now holds the position of Director, Business Development, according to Aconex’s website.]

Update (25 September 2008): Paul Ryan, editor of Anthill Magazine, has blogged about the deal (here). Aconex Chairman Martin 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 (SaaS) companies that are not over-exposed to a single geographic segment. Global private equity firms are still eyeing later-stage, cash-flow positive companies.

Update 2 (02 October 2008): Aconex CEO Leigh Jasper has blogged about the deal in the Aconex blog (see In the News…), talking about adoption of online collaboration and strong international SaaS market growth: “A report … by International Data Corporation estimated that the overall SaaS market will grow at a compound rate of 32.0% annually”.