Intertrust acquires technology firm

Posted: 18/06/2019

Intertrust has announced the acquisition of Viteos, a provider of technology solutions for US funds, from PPC Enterprises, FiveW Capital (an affiliate of 22C Capital) and Viteos management.

Viteos provides end-to-end middle and back-office administration for top-tier hedge funds, private equity, real estate, private debt and other alternative asset managers. Its headquarters and sales team are in the US, supported by operations in India. Viteos delivered revenues of $52m for the year ended March 2019, 94% in the US, having grown at an organic CAGR of 22% over the past two years, and an EBITDA margin of 36.6%.

Viteos co-founders Shankar Iyer and Chitra Baskar (formerly CEO and COO, respectively) will join Intertrust's Executive Committee and, along with other key employees, have reinvested approximately 35% of their after-tax proceeds in Intertrust shares.

The combined group will build on the existing technology partnership between the two companies and relationships between the management teams to drive growth. 

According to Intertrust, Viteos brings new clients, services and technology solutions, which expand Intertrust’s market potential into higher growth adjacencies with an annual market value of €3.5bn, resulting in a total market potential in excess of €10bn, growing at 4%-6% per annum (up from €6.5bn growing at 3%-5%).  

Stephanie Miller, CEO of Intertrust, said: “The combination of these businesses enhances our global position in fund services, expands our presence in the US and unlocks many opportunities to cross-sell our products and services. It will provide tremendous benefits to our clients through advanced technology, a digitised delivery model and a solution-oriented service suite.”

Financial implications

The acquisition is expected to deliver mid single-digit earnings per share (EPS) accretion in the first full year of ownership (2020) and double-digit EPS accretion by 2021. The return on invested capital of the transaction is expected to exceed Intertrust’s average cost of capital by 2021 and reach double-digits by 2022.

Some $22m of net run-rate annual cost synergies have been identified on a detailed bottom-up basis. The synergies will primarily come from offshoring selected support functions for client-facing teams, back-office and IT support, with India operations balancing existing jurisdictions and enabling 24-hour support for clients. 

The enterprise value for the acquisition is $330m (€294m), resulting in a pre-synergy multiple of 17.3x FYE March 2019 EBITDA. Including net run-rate annual cost synergies of £22m, the equivalent post-synergy multiple is 8.0x FYE March 2019 EBITDA.

The acquisition was funded through debt (new $150m term loan plus RCF) and cash on balance sheet with $11m re-invested by Viteos’ management and key employees in Intertrust shares. Leverage ratio at closing amounts to approximately 4.1x and is expected to decrease to below 3.0x by 2021.

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