Deal focus: Riverside flourishes in Australia
The Riverside Company has notched a sizeable exit with the sale of Australia’s Energy Exemplar as the GP expands its local team and launches its fourth Australia fund
The Riverside Group acquired power industry simulation software provider Energy Exemplar (EE) in 2017 via its second Australia fund, a USD 235m lower middle market vehicle. The asset was subsequently transferred to Australia Fund III, which closed on AUD 352m (USD 226m) in 2020. Last week, it was sold for a reported AUD 1.6bn.
The Blackstone Group and Vista Equity Partners will each take 50% stakes under the new ownership structure; Riverside is making a full exit of a controlling stake of unspecified size.
Riverside declined to comment on details of its hefty return, but the exit is clearly a landmark for its Australia operations, coinciding with the launch of Fund IV. The new vehicle is seeking USD 450m, according to a regulatory filing in the US.
As a founder-succession opportunity with potential for back-end professionalisation and a sales function buildout, EE is typical of Riverside’s approach to Australia. The company was acquired from a founding couple, seeking personal resolutions in the midst of a divorce as well as new options for going global.
The cores strengths of the business were in superior technology – computations were deemed faster and more sophisticated than competitors – as well as a stable customer base of electricity generators, regulators, traders, consultants, and academic institutions.
“We recognised that customers like that are a double-edged sword. It can be very hard to win them, but once you do, you tend to keep them forever, as long as you continue to invest in the product and service care they demand,” said Simon Feiglin, Riverside’s head of Australia (pictured).
“Our view was, this is a great product with a good market reputation, and the customer retention rates are astronomical. Let’s just do more of that.”
Within two months of acquisition, Riverside support the bolt-on of US-based counterpart EPIS, which expanded a minor North American beachhead and added missing competencies in optimising user interfaces.
New leadership was brought in, including a CEO, CFO, COO, CTO, head of sales, and head of HR among others. The staff grew from about 30 to 250 over the holding period as a 24-hour customer support centre was established in India. The sales team more than quadrupled.
As sales penetration in the US and Europe deepened, new markets were opened up in the Middle East and Asia. The company is said to have grown 30% a year during the six-year investment period, with annual recurring revenue raising from AUD 20m to more than AUD 135m. Much of the expansion was driven by reinvested cash flow.
“We were happy to basically take the margins down for a period of time because we saw it as a great opportunity to grow the business,” Feiglin said. “It wasn’t about what happened in year one, year two, or year three. It was investing for growth.”
Momentum for EE was also underpinned by two macro themes. First, national imperatives to adapt to energy transition have encouraged the deregulation of power industries globally, prompting experimentation through project modelling and simulations.
Second, the longstanding promise of Australia’s middle market continues to ripen as baby boomer-owned businesses increasingly come to market and international buyers explore more opportunities just under the mega-cap threshold.
Riverside, which has bases across the US, Europe, and Asia has made the most of its global connections in its Australia business. All of its exits in this market have been to offshore buyers, which are roughly split 50-50 between strategic investors and financial sponsors.
“It’s a slow leak in the damn rather than a cascade, but we’re starting to see more of those opportunities come, and increasingly, we’re seeing business owners thinking more globally,” Feiglin added.
“We think there’s a lot of opportunity in small businesses that can grow globally or at least take learnings from overseas into Australia. That appeals to us, and that’s where we are uniquely positioned.”
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