HIG Capital has invested in Cleo Communications, a provider of ecosystem integration software that is witnessing rapid growth as e-commerce adoption continues to take off.
“The key thing about this company is the technology – the customers absolutely love it, and there is no other company that has built what Cleo has,” a source familiar with the deal told PE Hub.
“The company has invested tens of millions to build the modern cloud-based product over the last several years,” the source continued.
Cleo, based in Rockford, Illinois, provides its clients business agility, accelerates partner onboarding, automates key business processes, and captures new revenue streams through application, B2B, and data integration technologies. Cleo’s Integration Cloud platform provides more than 4,000 customers worldwide with strategic supply chain visibility into revenue-critical end-to-end business processes across the ecosystems of partners and customers, marketplaces and customers’ internal applications.
HIG paid a revenue multiple for Cleo, which grows 20 percent annually or more, according to the source. The investment is indicative of HIG’s push into high-quality and high-multiple software businesses that are growing rapidly, the source said.
In fact, the firm was prepared to “stretch” on valuation because of Cleo’s sophisticated technology, which proved unique through the diligence process, the source added.
The company was previously backed by Alpine Investors and Peterson Partners in partnership with the management. Existing institutional investors are exiting their stakes as part of the deal, but Cleo’s management is rolling a significant portion of their stake.
With Cleo, HIG is investing behind the momentum in the application infrastructure and middleware market, which is expected to witness significant growth in the next few years.
According to Gartner, the Integration Platform as a Service (iPaaS), Managed File Transfer Suites (MFT) and B2B Gateway Software sub-segments in the application infrastructure and middleware market will represent $5.5 billion in annual revenues worldwide in 2021, with expectations of reaching $7.1 billion by 2024.
With Cleo considered a disrupting force in these sub-segments, the firm expects to bear the fruit of its growth, especially in light of e-commerce-driven digital transformation.
“To compete successfully, companies across industries need to master increasingly complex B2B information flows and integrate the applications running the enterprise. Cleo has the platform that helps its clients meet these challenges,” said Timur Akazhanov, managing director of HIG.
“The company is positioned for further growth as e-commerce and the exponential market growth of digital information flows continue to expand the need for user-friendly, rapidly deployed and feature-rich platforms like Cleo’s,” he said.
UBS Investment Bank served as exclusive financial adviser to Cleo.
HIG is investing in Cleo through HIG’s Advantage Buyout Fund, which closed on $3 billion in October 2018, exceeding its target. The fund makes control equity investments in high-quality growing companies.
The new platform investment comes as HIG runs a sale process for IT services provider Trace3, PE Hub reported recently. In other recent activity, HIG in late May agreed to buy Cora Health Services from Gryphon Investors in a deal valuing the physical therapy company north of $500 million, PE Hub wrote.