Deal of the Year, Large Market, 2017: Providence Equity, Ministry Brands

Private equity firms occasionally source high-powered returns from a higher power.

Providence Equity Partners’ growth equity arm, Providence Strategic Growth, won this year’s large-cap deal of the year award with its investment in Ministry Brands, a software company that provides cloud-based technology for faith-based institutions, including churches, schools and camps.

In just 21 months, Ministry Brands grew under Providence to include a collection of 25 brands offering services from credit-card processing and content management to website building and background checks.

The company’s revenue expanded by more than 15x, and EBITDA grew by more than 29x. Its employee headcount and customer base grew by roughly 5x.

Sources familiar with the deal pegged Providence’s exit as having generated a net IRR at around 1,200 percent, with a 12.1x multiple. Weil, Gotshal & Manges, Bank of America Merrill Lynch and Harris Williams & Co advised on the deal.

The software market for faith-related institutions was highly fragmented at the time of Providence’s acquisition. Ministry Brands, Knoxville, Tennessee, wasn’t a small company, but its product line and customer base were slightly removed from what providers in Silicon Valley and the Northeast Corridor typically offer.

“To us, it makes it more interesting to find companies that are outside our traditional markets. We’ve had a lot of good luck in investing in companies that are outside those big centers,” said John Marquis, a vice president at Providence. “There’s no direct flights into Knoxville, and to us that makes it more interesting.”

Furthermore, Ministry Brands caters to a customer base that’s yet to fully adopt modern approaches to content management and payments, which enables the company to establish clients early on in their adoption curves.

“I just think that certain sectors are later adopters,” Providence Managing Director Marco Ferrari said. “Churches, a lot of times they don’t have full-time IT staffs. They’re relying on a lot of volunteers, so they may not be as current on technology.

“We caught it at the right time.”

Churches that adopt Ministry Brands software, which enables parishioners to set up recurring donations rather than having to reach for their wallets every time they see the collection basket, tend to see their donations grow by 30 percent on average, Marquis said.

“When you go to them with the data around what it does for their cash flow, the software pays for itself, basically,” Marquis said. “It’s all monthly recurring revenue. It’s not like they’re making these huge up-front investments.”

Some of the company’s growth stemmed from the fact that Ministry Brands could offer customers a wider range of products than its competitors. That range expanded dramatically over Providence’s period of ownership: Ministry Brands completed 24 add-on acquisitions during the period.

The first — Shelby Systems — was executed within 30 days of Providence’s acquisition of Ministry Brands. One of the larger acquisitions executed by the Ministry Brands team was a carve-out of Active Network’s faith division, which brought in more than $20 million of EBITDA.

“The team that we backed is the team that executed the [add-on] strategy,” said Ferrari about the Ministry Brands team led by founder and CEO Ross Croley. “The team that we backed was the real driver.”

In expanding the company’s product offering, Ministry Brands enabled churches and other faith-based institutions to narrow their range of vendors. As Ferrari noted, many of these institutions rely on smaller IT staffs or volunteers, and may not have the bandwidth to manage multiple relationships with third-party service providers.

“We brought in numerous ancillary services that the churches were willing to buy from one vendor,” Marquis added.

After folding the add-ons into Ministry Brands’ existing business, the Providence team felt Ministry Brands had maximized its potential. The firm finalized the sale of its portfolio company to Insight Venture Partners in December.

“We always set goals for our investments. They are always five-year goals. In this case, we got where we wanted a lot quicker than we thought,” Ferrari said. “We’d done a lot in a short amount of time.”

Action Item: For more information on Providence Strategic Growth, visit www.provequity.com/private-equity/psg

The Ministry Brands team in El Salvador, on a mission trip. Photo courtesy of Ministry Brands.