• Fund VIII is just over 60% deployed, sponsor sees ample opportunities across services
• Value creation strategy draws on technology transformation, scale through M&A
• Realizations continue apace, but Octus exit unlikely this year

Private equity sponsors are competing aggressively to acquire professional services firms, in a race to digitize the industry and build platforms of scale. This helped propel global professional services M&A volume to USD 129.4bn in 2024, up 31% year-on-year, according to Mergermarket data. North America alone – which was responsible for nearly half of overall deal flow – saw a 62% increase in activity.

Permira, which is currently deploying its eighth global fund, has been investing in professional services companies for the best part of a decade.

It started in 2016 with a USD 834m carve-out of Hong Kong corporate services provider Tricor, which was exited for USD 2.76bn five years later. The landmark USD 1.75bn acquisition of Duff & Phelps was announced in 2017, triggering an M&A spree that included Kroll. After a new consortium took a majority stake for USD 4.2bn in 2020 – Permira retains a small interest – the business rebranded as Kroll.

A partial monetization from another professional services asset came as recently as last year when Permira sold half its stake in fund administrator Alter Domus to Cinven at an enterprise value of EUR 4.9bn. The private equity firm first backed Alter Domus in 2016 and helped the company enter the US market via M&A, including the acquisitions of Cortland and Strata. “It’s been a hot trade recently, but we’ve been at it for quite a while,” said Daniel Brenhouse, a partner and co-head of Permira’s services team. “We’re seeing that pattern recognition resulting in other opportunities around the theme of professional services and we’re incredibly selective in partnering with growth-minded teams.”

Across services as a whole, the firm sees the potential to invest in a broad opportunity set, which includes information services, wealth management services, as well as insurance services. The current portfolio also features recruitment process outsourcing business Cielo, acquired in 2018, as well as legal services provider Axiom and credit market data, analytics, and intelligence provider Reorg –now Octus – which were 2019 and 2022 investments, respectively.

Blue-collar services are on the agenda as well. According to media reports, Permira has agreed to purchase Encore Fire Protection, a Pawtucket, Rhode Island-based provider of fire safety services, in a deal valued at USD 1.8bn.

Tech DNA, keen on M&A

Overall, Permira has invested over USD 13bn in services companies globally. Pattern recognition facilitates the consistent application of value-creation initiatives focused on scaling. The sponsor’s approach draws heavily on technology, which Brenhouse notes is a “huge part of our DNA.” Technology is Permira’s largest sector team, and it is supported by a network of executives and advisors who have experience running large-cap tech businesses.

“Within services, the most consistent themes we find are opportunities for M&A, go-to-market transformation, digital and tech-enablement – including GenAI [generative artificial intelligence] – and product innovation,” he added. “Many platforms are ripe for consolidation, and we look for management teams set up to do that or bring in people who can help deliver on the M&A opportunity.”

Brenhouse wears two hats at Permira, co-heading the services team and leading the New York office. In the US, the firm also notably has an office in Menlo Park, California. Founded in 1985, under the Schroders Ventures name, it became Permira in 2001. The firm has been in the US for around two decades, during which time the North American market has grown to equal Europe.

Permira invests globally across five key sectors – technology, healthcare, consumer, services, and climate – with no set mandate for a given geography, but Brenhouse noted that there is now an even split between North America and Europe in terms of deployment. Fund VIII, which closed on EUR 16.7bn in 2023, is just over 60% invested.

Brenhouse began his career in investment banking, in his native Canada, and joined Permira in 2011. Returning to work after completing an MBA, he immediately got involved in Permira’s Duff & Phelps buyout. The deal would prove transformative – for Brenhouse and for Permira’s trajectory in professional services.

Duff & Phelps grew significantly under the private equity firm’s ownership. Risk consulting player Kroll was the most significant of multiple add-on acquisitions, giving the combined entity a presence in 28 countries globally, with nearly 3,500 employees, according to a press release at the time.

Despite ceding control in 2020 to a Stone Point Capital and Further Global-led consortium, Permira retains board representation – through Brenhouse – as a minority investor. Kroll remains a serial acquiror, building a broader services portfolio that extends into areas such as valuations, cyber and data resilience, and compliance and regulation. The New York-headquartered company generates over USD 2bn in annual revenue.

“Kroll is excellent at integrating new companies, maintaining its culture, and helping each company scale on its platform,” said Brenhouse.

Pattern recognition

Permira drew on this experience when pursuing Axiom, which at the time was founder and venture capital-backed. The investment marked another foray into the legal services sector after the 2014 investment into LegalZoom.

Central to the thesis was the potential to achieve scale in a global legal services market Permira estimates is worth around USD 700bn. Large customers, including Fortune 500 companies, comfortably spend more than USD 1bn a year on external legal services.

“We’ve focused on M&A, go-to-market transformation, and technology enablement across the workflow,” explains Brenhouse.

Bliss Lawyers, a provider of legal and recruitment services purchased in 2020, was among Axiom’s notable add-ons, bringing a US-wide network of more than 35,000 lawyers able to serve customers part-time or full-time. In 2022, the company picked up Plexus Engage, a subsidiary of Australia-headquartered legal technology company Plexus with over 80 active and bench lawyers.

Reorg was in a markedly different position to Axiom when Permira completed the acquisition of a majority stake, in a deal that reportedly valued the business at around USD 1.3bn. The business was large – annual revenue was well in excess of USD 100m, Mergermarket previously reported in November 2021- and it had been backed by Warburg Pincus since 2018. Yet, on investing in Reorg, the firm followed a similar playbook.

“It was a very fast-growing business when we backed it in 2022,” said Brenhouse. “The challenge and opportunity has been to maintain that growth without deceleration, and that’s been the case since the funds invested.”

M&A was always integral to the plan but with the specific objective of appealing to clients across the credit spectrum, beyond the restructuring niche. In this context, FinDox, a financial document management business, was a good fit. The acquisition was announced in November 2022.

Permira discussed a potential rebrand early in talks with company management. Reorg ultimately became Octus late last year.

“The founder was looking for a partner to help broaden the company’s capabilities beyond just restructuring, which led to the rebrand to Octus,” Brenhouse said. “The license to bring new products and innovation as Octus increases materially.”

The company has more than doubled its annual recurring revenue, according to Brenhouse, but M&A is only part of the story. He noted that 90% of growth since 2022 has been organic. There are no immediate plans to exit, with the expectation of more expansion to come. Indeed, Octus announced another add-on – credit research specialist LoansIntel – last year.

“It’s a phenomenal growth story, and we’re in no rush,” said Brenhouse. “If someone comes along and gives us a serious offer to consider, we need to do our job. But there’s no process for an exit this year.”

Paths to exit 

Nevertheless, Permira has been busy on the exit front of late, against the background of LPs placing increasing emphasis on distributions. The firm’s average holding period is 4.4 years, according to Mergermarket data, and Brenhouse recognizes there are “a number of situations where we’ve been sitting on businesses for 5-7 years.”

On the services side last year, in addition to the partial monetization of its Alter Domus investment, Permira sold a majority stake in Universidad Europea to EQT. Again, it is holding onto a minority stake in the expectation of further upside. EBITDA and revenue had grown 2.5x and 2x, respectively, since the firm’s initial investment in 2019, according to a deal announcement.

Permira has also employed dividend capitalizations as a monetization tool, including at Axiom. According to a source familiar with the situation, there have been over USD 300m of dividends in total to date at Axiom.

There are currently no imminent plans for an exit from Axiom. “We will certainly evaluate opportunities as they arise,” said Brenhouse. “We’ve already made a couple of incremental realizations on that investment, so we’re happy to continue riding the growth trend there.”

Unlike many of its peers, Permira doesn’t rely heavily on continuation vehicles (CVs); they have been used infrequently, for instance, to return capital to investors on investments held for a decade or more.

As the window for IPOs opens again, Brenhouse notes that PE has become more sophisticated in readying companies for IPO, but points out that Permira ultimately strives for balance in the pursuit of exits.

“We try to blend the portfolio to avoid being overweighted in one path versus another because the IPO window can open or close, and we don’t want to be left without an exit path,” he said.