UK exclusive: 4Projects acquired by US ERP vendor ViewPoint

Sunderland, UK-based Software-as-a-Service construction collaboration technology vendor  4Projects has been acquired (for an undisclosed amount) by Portland, Oregon-based financial systems vendor Viewpoint Construction Software.

Almost exactly a year after I talked to Viewpoint executives about their aspirations for the US enterprise resource planning software company (see ERP vendor Viewpoint viewing collaboration space), the 4Projects acquisition was announced to its UK staff this morning (Update, 11.55am: see also Viewpoint news release). The UK business, which turned over just under £5.1m in the year to March 2012 and has been consistently profitable since 2003 (post), will continue to trade under its own name. No redundancies will result from the move; indeed, Viewpoint is planning to “invest in the team,” funding further 4Projects marketing and product development so that it ultimately offer an integrated suite of on-premise and SaaS solutions to its customers.

Viewpoint’s third acquisition in a year

When I talked with Viewpoint’s CEO Jay Haladay and VP  Strategy & Corporate Development Matt Harris in February 2012, Jay hinted about moving into the SaaS collaboration space, which they saw as a complement to its existing on-premise AEC business solutions, and talked about mobile technologies and building information modelling (BIM).

In the past 12 months, Viewpoint has acquired an AEC content management solutions vendor, Construction Imaging (last May; post), and a mobile solutions provider, ACS Connect (last month; news release). In parallel, they also began to research key players in the collaboration market, and by last summer had identified 4Projects as their preferred target for a third acquisition.

A presence in the US market was not a factor in the decision, I learned from a pre-announcement conference call yesterday. 4Projects’ partnering strategy (see 27 August 2012 post) has seen the company widen its network to reach Australasia, Hong Kong, South Africa and various countries in central Europe, and the business had also been selling in the US since 2008 (post). Its expansion – like others (Aconex, Asite and Conject included) – was hampered due to the global financial crisis, but it had begun to see north America revenues grow substantially (50+%), albeit from a low starting point, during the past two years (see 14 January post: 4Projects growing again…); similarly, Aconex’s Americas revenues grew 70% in the year to June 2012 (post).

Strategic fit

More important in Viewpoint’s decision was the strategic fit. For some customer needs, it could develop its own applications; for others, it could work with partners; but some requirements could only efficiently be satisfied by acquisition. Matt said the 4Projects collaboration solution was well-known, highly scaleable and had adoption by industry clients, and its company team ethos meant the two businesses were “culturally well aligned”. Jay (right) stressed the ‘family’ element (his two sons both work in the company), underlining that staff morale was every bit as important as customer satisfaction and a strong product road-map.

The 4Projects acquisition also gives Viewpoint an opportunity to learn from the UK business’s R&D investments to expand its BIM and mobile capabilities (post). The US AEC industry was once regarded as ahead of the UK on BIM, but the British government’s 2016 mandate regarding BIM for public sector projects has done a lot to galvanise innovation in technologies and in the necessary people, process and structural changes. As a result, the UK is now second only to Finland, according to some. 4Projects has been investing in BIM and related cloud-based developments that its directors believed would help sustain the business as its industry customers moved from 2D CAD to nD. Now, such expertise could also prove invaluable to Viewpoint customers on the other side of the Atlantic (and in other regions).

ERP plus AEC SaaS?

A tie-up between a US-based ERP vendor and a UK-based SaaS collaboration specialist is not unprecedented: Conject (then BIW) announced a tie-up with Sage Construction and Real Estate (Sage CRE) in December 2009. At the time, I felt this was a potentially a powerful move by BIW, giving it access to a network of Sage business partners focused on construction-oriented customers. But I believe progress was hampered by the US recession, the ability and/or willingness of on-premise accounting software resellers to sell SaaS-based document collaboration from a relatively unfamiliar, non-US vendor, and loss of concentration following BIW’s December 2010 acquisition by Conject.

Through Viewpoint, 4Projects can be offered to an expanding north American (and, more recently, Australian) customer base; Jay said its construction-specific v6 ERP product was proving very successful, with 191 new customers secured in the past year (almost half of them former Sage customers), helping the business grow around 50% since 2011. The 4Projects product will not be ‘bundled’ with Viewpoint ERP (or vice versa), but over time the company will respond to AEC customers wanting to connect the two offerings.

Potential integration of an AEC-focused SaaS collaboration platform and an ERP solution was something I heard discussed by Unit4 last February (I attended the company’s UK user conference and heard of the group’s plans to extend the reach of its former Business Collaborator platform across its customer base; post). However, the Viewpoint team maintain that construction customers’ needs are too exacting for “horizontal ERP systems” to be adapted for use in the AEC sector. “The construction industry is a big vertical, and contractors have very specific requirements that are best met by tools like Viewpoint,” Jay said.

The numbers

A year ago, Viewpoint was a 250-strong business turning over about $40m. The three acquisitions since then take the workforce to between 350 and 400, and, allowing for growth during 2012, the combined group probably turns over somewhere over $70m. There is relatively little overlap in the operations of Viewpoint and 4Projects, with the latter potentially giving the US business an ERP foothold in the UK, mainland Europe and the Middle East (where it has no presence) as well as supporting its efforts to expand in Australasia.

I understand the deal was timed so that private equity firm August Equity and some other shareholders could dispose of their stakes in the business without having to go through a further financing round. They had funded a £21 million July 2007 management buy-out which saw £9.6m of debt funded by bank loans, a further £10.7m of debt covered by loan notes, of which £7.9m was held by August Equity; while 4Projects directors, including CEO Richard Vertigan (above) and the then CFO Steve Nelson, collectively held around £3.4m of the remaining loan notes. The Viewpoint acquisition eliminates these debts from the company’s balance sheet, clarifies the company’s ownership (it’s now a 100% owned subsidiary of Viewpoint Construction Solutions), and has tied key executive directors, including Richard, sales director Steve Spark, SVP Jason Warde, CFO Chris Baty, CTO Andy Ward and client development director Duncan Mactear, to the company for the immediate forseeable future (while Steve Nelson has resigned from his non-executive role).

Deal value? – let’s take a guess

The Viewpoint team and 4Projects people I spoke to refused to discuss the value of the deal or how it was funded, so I can only speculate about how much it was worth….

At the time of the MBO, 4Projects was valued at around 6.7 times its 2007 revenues. Factors in that valuation will have included historic revenue growth figures and positive sentiment for SaaS businesses, but the global financial crisis saw 4Projects’ growth falter for two successive years after peaking at £5.5m in 2009, the construction industry’s recovery has been patchy and pre-recession SaaS enthusiasm may well have dissipated a bit. However, 4Projects’ CFO Chris Baty recently told me about the the company’s accelerating double-digit growth and prospects of a record-breaking year to March 2013, which could put the revenues at, say, £6m. Being optimistic, in the (unlikely) event a similar multiple was applied to this deal, we could therefore be talking of a transaction worth some £40m; being realistic, I suspect the valuation to be somewhat lower, perhaps around £30-£33m.