Carrick Capital Partners LLC in the past 90 days has successfully exited its first three portfolio companies.
Now, the private equity firm that focuses on software, tech firms, and tech-enabled service organizations has a big problem—finding more investments at reasonable prices.
Fast-growing software companies are receiving valuations of 10 to 15 times revenue, compared to prior averages of five to seven times revenue, according to Carrick Capital co-founder Jim Madden, who works out of the company’s headquarters in Newport Beach.
“When we’re selling, we’re the beneficiary,” Madden said.
“As we’re looking to make new investments, we’re having to look through more companies. Some of the prices are just not sustainable.
“There is a ton of capital out there,” he told the Business Journal.
Madden first rose to prominence by founding Exult Inc., an internet-based human resources firm that he sold for about $900 million to Hewitt Associates in 2004.
In 2012, he co-founded Carrick, which has raised $800 million. The firm typically invests in software companies with annual sales of $20 million to $100 million and organic growth topping 15%.
Among its 13 current portfolio companies is Mavenlink Inc., an Irvine-based company whose revenue is growing up to 50% this year by providing software for service companies to streamline their project workflows.
Mavenlink in April secured a $48 million Series E funding round co-led by Carrick and Goldman Sachs Growth Equity.
Mavenlink’s Chief Executive Ray Grainger in September won a Business Journal Innovator of the Year award.
The Big Sales
Carrick’s three recent exits are:
• Carrick in 2016 made a $50 million investment in InstaMed, which makes software that connects consumers, providers and payers for healthcare payment transactions.
While InstaMed is based in Philadelphia, its co-founders Chris Seib and Bill Marvin have worked for at least a decade in Orange County, including maintaining a Newport Beach office.
Its sale contest attracted 30 bids, half of which were from larger companies and the other half from larger private equity firms.
JPMorgan eventually won, paying more than $500 million, according to CNBC.
“Having JPMorgan buy our company made me feel good,” Madden said.
Carrick reported an approximately 35% internal rate of return and a 2.7 multiple of invested capital from the deal.
InstaMed processed $94 billion in healthcare transactions last year. JPMorgan said about $3 trillion is spent annually on healthcare, which has “significant transaction friction and inefficiency.”
• Carrick’s first investment was $28 million in 2013 in San Francisco-based Axiom, which has grown from a business that supplys lawyers to companies on demand to a provider of legal software services to larger businesses.