PE Hub caught up with Jason Wright, a partner at Apax who leads the firm’s tech group, to retrace the Duck Creek investment.
Over nearly six years of investing in Duck Creek, Apax helped the provider of cloud-based software for the insurance industry triple its revenue, according to the PE firm.
Based in London, Apax attributes much of Duck Creek’s success to an aggressive cloud migration strategy. Based in Boston, Duck Creek’s platform aims to help insurance providers capitalize on the power of the cloud to run agile, intelligent and evergreen operations.
Apax has succeeded in the past with vertically focused software application companies that have completed transitions to the cloud. Examples include: ECI Software, in manufacturing and distribution, which Apax sold to Leonard Green in 2020, reportedly making 4.2x its money; and Epicor Software Corp, a provider of business software, sold to KKR in 2016, for 3.9x, according to sources.
Apax initially took a controlling stake in Duck Creek in 2016 through a carve-out from Accenture as the PE firm bet on the insurance industry’s warming up to modern technology.
Duck Creek went public in 2020, and Apax did multiple secondaries offerings in which it sold shares to investors.
“Looking back, we are extremely proud of what was achieved at Duck Creek. We tripled revenue and we created a business that achieved a terrific return,” Wright said.
After the deal closes, the return for Apax will reportedly be more than 5x, including from the IPO, secondaries offerings and the purchase by Vista, sources told PE Hub.
It all began with a carve-out
“We approached Accenture in late 2015 with the idea that, if Apax carved the business out, Accenture would retain a significant ownership stake and have two board seats. And, together in partnership, we would be able to grow the business in a much more accelerated fashion. That’s exactly what we did,” said Wright.
The cloud migration, which was at its infancy in the insurance sector when Apax acquired the controlling stake, was at the center of Duck Creek’s success, Wright said, adding that the strategy was to push that migration more “aggressively under independent ownership,” as the insurance sector was largely reliant on legacy platforms. He said Duck Creek’s products were best placed at the time to take advantage of this emerging trend.
Some of the benefits for the cloud based model that makes it attractive against the on-premise model include real time upgrade, enhanced security, and better uptime, all of which makes it less expensive, the Apax partner said.
“The insurance industry is largely built on legacy platforms and switching from those legacy platforms is extremely difficult. The complexity and mission critical nature of these products make it an attractive place for software investing,” he said.
Duck Creek also created significant partnerships with very influential systems integrators that were helpful in driving growth, said Wright. The company focused on growing the sales and marketing teams to drive revenue up.
Other growth opportunities came from the M&A strategy that focused on enhancing existing services or opening new ones. These include services such as payments, reinsurance and analytics services that allow insurance companies to analyze their performance and their own core data so that they can make strategic business decisions.
Under Apax, Wright said the company managed six acquisitions, including Prima XL, a European reinsurance software vendor “that we thought was the best product in the market, and it opened a whole new area for us.”
Wright also attributed the success of Duck Creek to the management team. The company navigated the disruptive nature of the pandemic and managed to grow as more businesses turned to the cloud based model, Wright said. “Growth slowed during the early days of the pandemic as it did for most technology vendors, but then picked up very rapidly as many customers or potential customers realized even more the benefits of cloud-based solutions.”
While valuations are proving difficult for many investors due to market pressures, Wright said the company was a particularly attractive target for private equity, given its financial profile and market position. “The company was approached by multiple parties, and the board reacted to that.”