Software Combined and Navis PE join forces to aggregate niche B2B tech verticals

MergerMarket recently sat down with Sydney-based vertical market software (VMS) aggregator Software Combined co-founders Evert den Hollander (CEO) and Stefan Jansen (CRO) and their Asia-based private equity (PE)-backer Navis Capital Partners’ Sydney-based Partner Johnny Zhang to discuss its aggregation strategy and how it fits Navis’ investment mandate. 

Software Combined has joined forces with its PE backer Navis Capital Partners to aggregate B2B software companies, primarily in Australia and New Zealand, but also with an eye on opportunities in other geographies, Software Combined CEO Evert den Hollander told this news service.

As announced last month (31 May), the PE firm completed the deal to take a controlling stake in Software Combined for an undisclosed sum, with the founders still retaining a significant minority.

Other geographies of interest include Asian markets like Singapore, Hong Kong and Malaysia, where Navis is headquartered, as well as European markets, given the Software Combined founders’ European heritage, den Hollander said. 

As one of only a handful of Australasian VMS consolidators focused on specific B2B software verticals, Software Combined is positioning to be “the acquiror of choice” for mature businesses in mission critical business application verticals with sticky customers, stable and recurring earnings, consistent and attractive margins, and high free cash-flow generation, he noted.

Started in 2020, it has made its first four acquisitions targeting four key verticals, namely document management with Sydney-based Macroview, creative with New Zealand-based Streamtime, mining with Western Australia-based Scope Systems, and energy with Victoria-based Energy Inspection.

It is on the hunt for acquisitions to continue building in these and other segments, he said, without elaborating. 

Value proposition for vendors

Within its strict acquisition criteria, the company’s business model involves partnering with vendors to provide them with strategy and business support to help them deliver on their long-term growth plans, said CRO Stefan Jansen. 

“Many are likely to be founder-led businesses that have been operating successfully for several years but do not have succession planning or obvious exit options.” Partnering with Software Combined will provide them with access to capital and expertise, enabling them to optimise operations and maximise growth while preserving the businesses the founders have built, he said.

Software Combined will also provide liquidity options, especially for businesses without natural acquirors, giving them certainty that the businesses they have built will continue as planned, even when capital market options are uncertain, he added.

Even though target companies, which are most likely to be in the AUD 1m-AUD 7m (USD 0.7m-USD 5m) EBITDA ballpark, are generally too small to attract big buyers or successfully scale on their own, their superior products and sticky customers mean there is limited downside risk to investors, Jansen noted.  

While technology is by nature often valued on blue sky criteria, it is increasingly performing as a defensive stock, as seen during the height of the Covid-19 pandemic, when technology companies proved real underlying value in helping businesses to undertake digital transformation, keeping the economy going and preserving jobs, he added.

Aligned investment mandates

Software Combined’s investment ethos is well aligned with that of its PE backer, which also has deep experience in buy-and-build models and invests in mature successful businesses with a view to optimising operations, maximising growth, and preserving founders’ legacies, Navis partner Johnny Zhang said.

Navis also targets companies with solid management teams and relies on their ability to execute based on their own reputations and networks in their sectors, he said, citing Software Combined as “a strong case in point”. 

Den Hollander and Jansen, along with the company’s third co-founder Niek Hoogenhout (CIO), are a team of established senior executives with decades of highly relevant global experience across M&A, consulting, fintech, software and cloud operations, Zhang said. 

Despite its global M&A expertise and active acquisition pipeline, with deals crossing its desk every day, “some early-stage and some advanced”, Software Combined also leans heavily on external advisors, Evert noted. It uses advisors for both deal scouting and due diligence across all aspects of deal execution, from tax and legal to financial and commercial analysis, he said.

“Being constantly in M&A mode, we have a good angle on the viability of potential targets as well as on the deal process and structure, so act quickly when we find the right deals and won’t be wasting advisors’ time," he added. 

Both Software Combined and Navis are investors for the long haul. “While we see an IPO as a potential exit option, and we envisage EBITDA of AUD 30m-AUD 50m by 2025, exit options will only be evaluated well into the future as our mantra is “buy, optimize and hold”, Stefan said.

by Louise Weihart in Sydney