Tuesday 21 May 2019

Fenergo targets NASDAQ IPO in three years

Fenergo plan to float on NASDAQ within three years
Fenergo plan to float on NASDAQ within three years

Sarah McCabe

Fenergo, the fintech company that has just completed the biggest ever investment round by an Irish software company plan to float on NASDAQ within three years.

Founder Marc Murphy (37) said it would grow revenue from €20m a year to €100m a year by 2018 and then IPO. It has doubled turnover for each of the last three years, he added.

Fenergo is just five years old. It was a spin-off from John Purdy's IT outsourcing business, Ergo, where Murphy once worked as a software engineer.

Fenergo helps banks and other financial institutions to manage regulatory compliance, using its own software products. Clients include many of the world's biggest lenders, such as RBS, Scotiabank, State Street, Rabobank and RBC.

Last week it agreed a €75m capital injection from New York-based private equity firm Insight Partners, valuing the business at €110m only five years after its founding.

Insight is one of the world's most successful software-specific investors; the company was an early investor in Twitter, Shopify and Solarwinds, who all subsequently went down the IPO route, and Trivago, which was later sold to Expedia.

It is also an investor in Irish online car-rental business Cartrawler, taking a minority stake in the company last year.

The deal facilitated the exit of two its original backers, Purdy (who is a non-executive director at the company) and Investec Ventures (formerly NCB Ventures).

Insight Partners now owns 65pc, while founder Marc and technology investor Paul Kerley share 25pc and the company's executive team have 10pc. Former Norkom Technologies chief executive Kerley is Fenergo's chairman.

Irishman John Meehan, a partner with London-based corporate finance advisers Arma Partners, ran the deal.

Fenergo was approached by more than 20 different private equity funds and investment groups, Murphy said, including Goldman Sachs, Warburg Pincus and Welsh Carson.

"You cannot get this type of funding in Ireland," said Murphy. "It doesn't exist.

"We went with Insight because of their software specialism and because they delivered much more than funding - everything from introductions to top 10 US banks, to helping us secure new hires," said Murphy.

"Our clients want us to become the global standard for what we do. This capital injection will allow that."

The Insight director who led the investment was Irishman Cian Cotter, a University of Limerick graduate from Cobh, County Cork.

"The best companies have choice over their source of capital and that was certainly the case with Fenergo," said Cotter.

"We have known Fenergo for two or three years and have been following its growth. This is not our first time investing in Ireland; we are also an investor in Cartrawler. We have done about 20 deals in total in Europe.

"We are focused on finding the best software companies in the world and are actively looking for Irish investment opportunities.

"Fenergo is solving a huge problem for banks, who are going to have to invest a lot of money in the next few years in the field in which Fenergo operates. Financial services companies told us Fenergo were the best at this, both in terms of products and the team."

He takes a longer-term view on IPO prospects.

"We think there's a long runway in front of this company and we want to help grow it as much as possible.

"I think an IPO is further down the road; it happens as a by-product of executive good strategy."

Insight has a staff of around 70 and a $5bn fund. "It is as easy for us to do a deal in Dublin as it is San Francisco - both are six hours away and both have direct flights.

"There is a lot of innovation coming from Irish software companies, strong management teams with success-driven cultures - and, of course, there is the ability to target Europe from Ireland."

Fenergo employs 140 people split between its Dublin headquarters and sales offices in Dublin, London, Boston, New York and Sydney.

It will use the recent fundraise to hire 100 more, mostly in Dublin, and will set up more foreign offices in Abu Dhabi, Tokyo, Stockholm, Singapore and Toronto.

"The plan is 100pc to keep the business in Ireland," said Murphy. "But there are challenges, mainly access to talent. It is a very competitive market for software engineers."

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