With Insight, Lightyear Enters Real Estate

Target: Realm Business Solutions Inc.

Buyer: Lightyear Capital; Insight Venture Partners

Seller: CMGI @Ventures and TH Lee Putnam Ventures

Financial Advisor: Realm: Harris Williams & Co.

Legal Counsel: Lightyear: Simpson Thacher & Bartlett LLP; Insight: Willkie Farr & Gallagher LLP

Like private equity, real estate has been making more and more headlines as transactions continue to grow in size and the market place melds into a single global playing field. But opportunities in the real estate sector don’t exist in the buying and selling of property alone. As Lightyear Capital and Insight Venture Partners exhibit in their latest investment, there are several ancillary opportunities in the sector for investors to grab a hold of.

Late last month, the two firms acquired the capital stock of real estate software provider Realm Business Solutions Inc. Terms of the transaction were not disclosed, however, Lightyear managing director Stewart Gross said the deal was completed at an “attractive multiple below the market average.”

The private equity duo bought two of Realm’s three divisions, which Gross called the “cash generating portions of the business.” These include Realm’s financial solutions division, which holds ARGUS, a widely used real estate asset valuation software, and DYNA, which forecasts the outlooks of portfolio properties owned by real estate investment trusts (REITs). The team also acquired Realm’s commercial solutions division, which houses a “profitable” accounting software for the commercial real estate market called CTI, Gross said.

Mark Kingston, who previously served as a manager of the two acquired divisions, has been appointed CEO of the company.

Realm’s flagship products, which include the aforementioned, are currently used in 40 countries by more than 8,000 customers. “ARGUS is used by 75% of U.S. REITS,” said Donald Marron, Lightyear’s Founder and CEO, adding that the company’s broad customer base and recurring revenue business model further made it an attractive opportunity.

The third of Realm that was not a part of the transaction was its cash solutions division, which, among other products, hosts COLLECT, a software that handles paper and electronic rent payments for landlords. Gross noted that the products in the cash solutions division were not mature enough to fit Lightyear’s business profile.

“We’re starting to see REITs become very much a part of the global landscape, especially in Asia, and this is an investment in the growing geography where real estate is becoming a major driving force,” Gross said.

With that in mind, a valuation software package like ARGUS is well positioned for growth since it has English, French, German and Japanese language capabilities that are interchangeable at the push of a button to easily facilitate cross-border real estate transactions.

Going forward, Lightyear and Insight intend to use Realm as a platform on which to add other real estate-oriented software and products, such as data services technologies that can provide state-of-the-market and valuation reports, Gross said.

Lightyear and Insight have already been versed in the financial services software niche. Lightyear is currently steward to Private Business Inc., which provides technology and processing solutions for community and small commercial banks. Insight, presently owns Strategic Financial Solutions, which offers software solutions for investment professionals including banks, brokerage firms, family offices and funds of funds. “And that is why we believe we’ll make good partners in this investment,” Marron said.

Realm represents the last portfolio investment made with equity from Lightyear’s inaugural fund, which closed on about $750 million in 2001, Marron said. Deven Parekh, a managing director at Insight said his firm’s equity check was drawn from the vintage-2005 Insight Venture Partners V LP. Including the Realm investment, approximately 35% of Fund V’s total $665 million has already been deployed, Parekh said.

Realm was sold by CMGI @Ventures, and TH Lee Putnam Ventures. Lightyear and Insight declined to break down their respective equity investments. “We are roughly equal partners,” Gross said. —A.N.