For a starring player in the pricing surge, look no further than iParadigms, a Warburg Pincus portfolio company playing in the highly coveted software-as-a-service, or SaaS, sector.
Insight Venture Partners and the Government of Singapore Investment Corp agreed to pay Warburg Pincus about 18x EBITDA for iParadigms in a deal that values the cloud-based operator of the widely used Turnitin plagiarism prevention service at nearly $800 million.
Casting an eye on the deal, Moody’s Investor Service said iParadigms’ debt-to-EBITDA leverage comes in at 8.6x, based on the company’s cash flow metrics. Despite its hefty debt load, “the expected continued strong, double-digit top line growth on iParadigms’ high-margin operations should allow for fairly rapid deleveraging,” Moody’s said.
For now, Moody’s assigned a stable outlook for iParadigms. But looking ahead, the roughly 57 percent equity contribution in the deal may motivate sponsors to drive up their debt load by extract dividends ”sooner rather than later,” the ratings agency said.
For Warburg Pincus, the deal offers a roughly 6.5x return on its majority stake investment in iParadigms in 2008, according to a person familiar with the transaction.
A spokesman for iParadigms did not return a phone call seeking comment on the purchase price multiple for the deal. But Deven Parekh, managing director at Insight Venture Partners, said the service provider “operates an incredible business that solves some of the most persistent and universal challenges in education” and that the company offers “amazing track record” of growth, with an opportunity to invest in new products, according to a prepared statement.
Rich valuations for NGP’s new crop of energy IPOs
NGP Energy Capital Management, the strategic partner for energy and infrastructure deals with The Carlyle Group since late 2012, has drawn lofty public market valuations for a rapid series of four U.S. initial public offerings from the oil and gas sector that debuted in the first half of 2014.
Unlike master limited partnership (MLPs) that require more accounting for investors to disclose partnership income, these four are set up as conventional public corporations. They are taxable at the corporate level; may or may not pay dividends; and offer capital gains appreciation potential to shareholders. The structure could provide better access to capital than MLPs, which some institutional investors avoid.
To be sure, even the latest EBITDA figures do not fully reflect the future earnings potential of these companies as they grow quickly by drilling and adding wells. The four IPOs recently traded between 11x and 19x their projected 2014 EBITDA:
- Memorial Resource Development priced at $19 a share on June 2 and now trades near $26 (as of July 10) for a market cap of $5 billion. That’s a valuation of nearly 19x its projected 2014 EBITDA of $268 million, based on its disclosed first-quarter adjusted EBITDA figure of $67 million.
- Parsley Energy priced its IPO at $18.50 a share on May 27 and has risen to nearly $24 since then, with a market cap of $2.7 billion. That valuation amounts to nearly 16x its potential 2014 EBITDA of $173 million, based on first-quarter reported adjusted EBITDA of $43.3 million.
- Rice Energy priced at $21 a share on Jan. 24 and has since risen to more than $28.40, with a market cap of $3.6 billion, or about 14x its potential 2014 EBITDA of $259 million, projected from its first-quarter adjusted EBITDA figure of $64.8 million.
- RSP Permian’s IPO debuted at $19.50 on Jan. 17, and it is now trading at about $30, with a market cap of $2.2 billion, or 11x its potential 2014 adjusted EBITDA of $195 million, based on its first-quarter adjusted EBITDA of $48.7 million.
NGP Energy Capital Management’s success with these deals stems from expected oil and gas production gains, coupled with a desire by investors to find yield in a low-interest environment. If energy firms offer access to a productive area in the United States’ range of domestic shale plays and a clear path of expansion, the market is currently rewarding them with healthy valuations, industry insiders told Buyouts.
NGP Energy Capital is targeting $4.5 billion for NGP Natural Resources XI, according to a report by sister website peHUB.