The private equity investor built out Payapps as a global solution for construction industry payments before lining up a trade sale that will return the bulk of capital committed from its second fund

Several bumper M&A deals have highlighted the global appeal of Australian software companies and facilitated exits for private equity in the process. Energy Exemplar, at a reported USD 1bn, is the standout example in recent months, but it has been joined in the large-cap space by Payapps after NASDAQ-listed Autodesk pre-empted an auction process with a USD 500m-plus bid.

IFM Investors, which acquired Payapps three years ago, hasn’t disclosed the sale price or its expected return. However, Adrian Kerley, a managing director at the firm, noted that a multiple of more than 3x could be expected given Payapps’ revenue expanded by the same factor.

Payapps was the first investment from IFM’s second growth fund, which closed on AUD 380m (USD 247m) in late 2022, and it is now on course to become the first exit. It follows the full realisation of Fund I with the sale of My Plan Manager, a payments processor under Australia’s National Disability Insurance Scheme (NDIS), to US-listed Arthur J. Gallagher towards the end of last year.

Fund I was relatively small, at AUD 200m, and My Plan Manager was one of only four portfolio companies. But the 12x return on that deal propelled the fund to a net multiple of 2.5x, securing a place in the top quartile of Australian funds from the past two decades, according to Kerley.

My Plan Manager is not a global expansion play. It is a proxy to NDIS, which is set to receive AUD 42bn in funding in the current financial year and could surpass AUD 100bn by 2032. On receiving an invoice from a therapist, participants submit it into the system for centralised payment, much like car accident insurance. IFM increased client numbers by 70% through M&A and organic growth.

“We turned it into the market leader by acquiring the number three player and the number six player. We also improved margins through automation and artificial intelligence (AI),” said Kerley. “When we invested, it was very manual – there were 400 people in Adelaide typing invoices into the system to process payments. By the time we sold it, 80% of that was being done by AI bots.”

SaaS sweet spot

Both My Plan Manager and Payapps sit squarely in the target categories under IFM’s growth strategy: software-as-a-service (SaaS), healthcare, and technology-enabled services. Three of the five Fund II portfolio companies are SaaS businesses – Payapps, Render Networks, and Tally Group – and each one generates at least half of its revenue from outside Australia.

Payapps is a payment management solutions provider to the construction industry. Digitalisation is central to the value proposition: the company takes the largely paper-based commercial interactions between contractors and sub-contractors, which span invoices, progress payments, and compliance reports, and brings it onto a single accessible electronic platform.

It was founded in 2014 by Lincoln Easton, who moved from banking to the construction industry, and Geoff Tarrant, previously an M&A banker and then vice chairman for Australia and New Zealand at Deutsche Bank. IFM had a preexisting relationship with Tarrant and latched onto the growth story during COVID-19. The GP paid AUD 40m for a majority stake in late 2020 via a bilateral transaction.

Payapps integrates with generalist software platforms like Oracle and Sage, bringing a streamlined service aimed primarily at large contractors such as Brookfield Asset Management-owned Multiplex. They sign enterprise-level contracts, paying up to AUD 500,000 a year, and instruct sub-contractors working across their hundreds of sites to use the same platform.

“Sub-contractors need to be educated on how to use the system to ensure they have a good experience – the goal is to create a value proposition for them, so they use Payapps as their sole invoicing and contract management platform,” said Kerley. “Sub-contractors might be charged a monthly fee as well. That mainly happens in Australia and the UK, not in the US.”

Global relevance

International expansion was logical, though not straightforward. A degree of product customisation was necessary in each market, but especially in the US. Notably, sub-contractors working in the US register a security over the properties they are building. On completion, property owners can only start selling units when they have paid sub-contractors in full, and the security is released.

“It leads to chicken-and-egg situations where the sub-contractor won’t release unless paid and the property owner refuses to pay until the security is released,” said Kerley. “Payapps solves this problem by operating as a clearing house. Documents are watermarked as incomplete, but once payments start flowing through the banking system, the watermarks are released.”

Payapps remains the market leader in Australia, it consolidated its number one position in the UK by acquiring the next largest competitor, and its US presence went from negligible to meaningful. The business now has more than 40,000 users and processes over AUD 75bn in payment claims per year, with IFM claiming 50%-plus annual topline growth and margin expansion under its ownership.

Leigh Jasper, who founded and led Australia-based construction industry software provider Aconex before selling it to Oracle for USD 1.2bn in 2017, invested in Payapps alongside IFM and worked on various growth initiatives. These included the introduction of an invoice financing product.

Autodesk, one of the company’s integration partners, proposed an acquisition as part of efforts to broaden its construction software offering. “They knew we were looking to exit in 2024, and they pre-empted based on that existing relationship,” Kerley said. “Payment flows and part-completion payments are niche areas, but the large players have struggled in developing this technology.”