Leonard Green & Partners & HG Capital take majority stake in IRIS Software Group

Leonard Green & Partners agreed in December 2023 to take a co-controlling stake in IRIS Software Group alongside Hg, which reinvested in the business, at an enterprise value of £3.1bn. ICG remained a minority shareholder through a new investment. Completion was subject to regulatory clearances. It was among the largest software buyouts in Europe that year. Founded in 1978, IRIS develops software for work that must be done exactly and on time. Its accountancy products prepare and file tax returns and company accounts, its payroll software calculates and pays salaries, its HR tools manage absence, contracts and employee records, and its education suite handles school administration and the communication between schools and parents. Its customers number more than 100,000, from small practices to large employers. The scale of what passes through those systems explains the valuation: one in six of the British workforce is paid through its payroll products, six million payslips are produced worldwide each month, 18 billion dollars of payroll payments are handled annually in the United States and Canada, more than 850,000 employees are managed through its HR tools, and over 12,000 British schools use its education software, with four million parents on its apps. Software of this kind is rarely replaced: it holds the records an employer must produce to tax authorities and regulators, and switching means migrating years of data and retraining staff mid-cycle. Eighty per cent of customers had been with IRIS for five years or more, and revenue and EBITDA had both grown at around 20% a year over the previous five, organically and through acquisitions. North America was the reason for the transaction. It already accounted for over a quarter of group revenue, and Leonard Green, based in Los Angeles, was brought in for its presence there. Hg had first invested in 2004, in what was its first acquisition in tax and accounting software, a sector where it had since deployed around 10 billion dollars across Europe and North America. Arma Partners and Rothschild & Co advised Hg, with Skadden and Linklaters as legal counsel, while Jefferies and William Blair advised Leonard Green, with Latham & Watkins as counsel, and Ropes & Gray acted for ICG.

It is worth noting that the fund HG Capital took control of IRIS Software Group through an LBO in 2011.