Battery Ventures will focus on acquiring companies across Europe that can introduce new features and functionalities for its recent investment in Forterro, principal Zak Ewen has told PE Hub Europe.
London-headquartered Forterro is a provider of enterprise resource planning (ERP) software for the industrial mid-market. Battery sold the firm to Partners Group for €1 billion in March after a 10-year hold period. But in late August, Battery announced a “significant” reinvestment in Forterro, with the aim of helping to define Forterro’s new acquisition strategy.
“We’re resetting the clock from an investment point of view,” Ewen said.
Battery plans to use this reset to pursue strategies such as transitioning the business to a subscription revenue model more aggressively than during the previous hold period.
“Having Partners Group behind the business provides a lot of firepower for future M&A ambitions,” Ewen added. The fresh firepower will target companies that are able to bring new functionality to Forterro, rather than “pure play” ERP software companies.
Such growth would be part of a broader expansion in the sector.
The global ERP market was $43.72 billion in 2020 and is estimated to reach $117.09 billion by 2030, with a compound annual growth rate of 10.0% from 2021 to 2030, according to a recent report by Allied Market Research.
Historically, Forterro had focused on acquiring ERP software businesses in Europe that cater to the mid-market manufacturing industry. “Over the past couple of years, especially with the new management team, we’ve expanded that aperture to encompass businesses in the wholesale and distribution industries as well,” Ewen explained.
No rebound
Boston-headquartered Battery covers a spectrum of deals, ranging from pre-seed venture to buyout. Ewen describes the current backdrop for tech deals as “relatively calm” as people wait for the dust to settle following a turbulent period. “The public markets and tech have not been too friendly since the fall of last year,” he said. “There aren’t a lot of signs suggesting that that will rebound in a drastic way.”
The main driver behind the deals that are coming, according to Ewen, is the quality of the assets. “Not all tech deals are created equal,” he said. “At the moment, on the private equity side, there’s a scarcity of tech businesses of scale. When I say of scale, I mean generating over €100 million of turnover.”
The tech sector’s struggles are not the only thing pressuring private equity deals. Rising interest rates will make capital structures more expensive, especially for firms focused on LBOs, according to Ewen. “Venture won’t see as much of an impact, but on the private equity side it will force people to take a closer look at their assumptions.”
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