On the heels of his firm’s largest exit to date, the Riverside Co.’s Joe Manning tells Mergers & Acquisitions that the intersection of scalable tech platforms in fragmented markets and secular growth warrant the froth in deal valuations. On top of increased buyside competition for assets and a rise in club deals, a specific type of target asset profile is responsible for soaring valuations. Riverside will continue to target deals in this niche as Joe Manning tells us.

Takeover valuations have trended higher in 2020, led by a surge in offers made by private equity. And surveys indicate financial sponsors expect the trend to continue.  

What companies are in this valuation sweet spot for disposals? Greenphire itself may have been a bit of an outlier. The former Riverside portfolio company that earned the firm its largest exit to date sits at the intersection of several attractive growth trends. The clinical trial software offers clients a payment solution, playing on buyer interest in fintech. Connecting clinical research organizations, hospitals, and academics, the company has healthcare sector exposure. It’s also workflow software as a service. “Individually those are some of the hottest categories out there and this is a combination of all of them,” Manning said.  

The result was a deep roster of potential buyers as well as a banner exit. Greenphire reportedly drew a wide range of bidder interest from healthcare strategics to payment companies in its recent sale. 

But the playbook that guided Riverside to its big exit is applicable to other opportunities as well, Manning says. Take the firm’s 2013 acquisition of utility workflow management software company Arcos. Fragmented market? Check. Room for growth? “Utilities are behind in field crew management software,” Manning explains. “We expanded from one to 6 products at Arcos, went deeper into our customer base and exited successfully. It’s very repeatable for us; we’ll continue to do that.” 

Riverside exited Arcos in a sale to Vista Equity Partners earlier this year after making two bolt-on acquisitions. The firm added SAMsix in 2016 and RosterApps in 2018. Building a “broad and high quality” management team and sale processes and infrastructure sets a business up to scale, Manning notes.  

Rich valuations won’t deter Riverside from future investments either. “If you get it right on evaluating the growth opportunity, you grow the top line and that’s how we’re generating the returns,” Manning says.  

The firm’s investment in Unifocus is a case in point: Riverside entered the service and hospitality industry-exposed software company in December. “Unifocus has a phenomenal product for scheduling staff within hospitality facilities. It’s a very differentiated solution,” Manning explains. “It’s a great business even though we invested in a time when the industry is struggling.”