What is the deal?
In October 2020, we completed the sale of Clear Review to Advanced Computer Software Group (ACS), one of the UK’s leading software companies, backed by BC Partners and Vista Equity Partners. We had led a £2.5m Series A investment in the cloud-based performance management system provider in June 2019. We invested £1.85m and Mercia invested £650,000. Its founder and CEO, Stuart Hearn, was very keen to keep control, so he retained just over half the shares. The sale generated a 75% internal rate of return. Deal multiples were not disclosed.
How were you introduced?
We first met Hearn and the Clear Review team in London in early 2019. He was previously international HR director at Sony and head of a talent management consultancy. He launched the business in 2015, having recognised the need for simplified performance management software. In the first two years, revenue and headcount grew by 100%. It attracted more than 150 corporate customers, including CYBG/Virgin Money, HarperColllins and Mishcon de Reya, and expanded into the US.
Clear Review was right in our sweet spot – a mission-driven founder, a great team that shared his vision, and a B2B software-as-a-service product meeting customer needs. The Series A funds were for Clear Review’s next stage of growth, which included product development, increasing US presence, and establishing itself as the UK market leader.
What were the timescales?
Our hold period was very short. Just 15 months later when a strategic acquisition by ACS presented an exit opportunity and the chance for Clear Review to scale the business even more rapidly. We had grown turnover to around £3m. Lockdown meant HR teams needed to work remotely. Clear Review’s lead times for sales came down from 6-12 months to two months overnight. ACS provides its customers with more traditional HR software focused on payroll. Performance management was a gap in their portfolio, so that’s why they approached Clear Review. The sale process took around three months.
What were the challenges?
Hearn was an extremely competent and charismatic leader, very experienced in the sector, who could identify the real issues and work out solutions to them. But he was pretty much at the core of everything going on in the business, and that’s not scalable. Following the Series A funding, we immediately recruited and built a managerial team around Hearn. That included a CFO, a chief revenue officer to build the sales team, an MD, and Stewart Holness as chairman. Holness had hands-on scale-up experience and had exited several businesses before. He was a good sounding board and could advise Hearn on growth strategy and sale tactics.
Who were the advisers?
ABG Corporate Finance provided corporate finance support and Marriott Harrison provided legal advice to the shareholders of Clear Review. EY did the financial due diligence and Mishcon de Reya provided legal advice to ACS.
What lessons were learned?
There is always quite a bit of a debate on price. ACS is an experienced buyer. It bought a number of businesses before and is backed by Vista Equity Partners. A few people were looking over its shoulder. Things got heated on a couple of occasions, as you’d expect. Having a strong chairman took some heat from the CEO, which was important because Hearn had to continue working with ACS. Putting him in a position where he was having difficult conversations about pricing with future colleagues wouldn’t have been healthy.
About the article
This is extracted from the full article in the Corporate Financier February 2021 edition - exclusively for Corporate Finance Faculty & Faculties Online members - who can access our highly respected magazine in its originally designed form, and our extensive archive brought to you by the ICAEW Corporate Finance Faculty.
