FFL Partners is wrapping up four years as an investor in Accordion Partners LLC, which offers outsourced CFO services to private-equity firms, by selling its stake to Charlesbank Capital Partners and Motive Partners.
San Francisco-based FFL notched a return of 4.6 times its minority investment with the sale, according to a person familiar with the deal. Charlesbank and Motive are acquiring a majority stake in the New York-based financial-technology and outsourcing company.
The exit caps a period in which Accordion’s revenue and adjusted pretax earnings roughly quadrupled, according to FFL Managing Partner Cas Schneller and Accordion founder and Chief Executive Nick Leopard. The company now generates annual revenue of nearly $200 million, according to a spokeswoman.
“When FFL came in we had under 100 employees and now we have more than 350,” Mr. Leopard said. “We had two offices and two practices and now we have 10 offices and eight practices.”
Accordion began in 2009 by providing services typically handled by a company’s chief financial officer and by targeting private-equity firms and the businesses they back. Since then it has expanded to offer more functions of the CFO’s office, such as handling financial transactions and merger integration, Mr. Leopard said. The company now works with more than 200 private-equity firms and their portfolio businesses.
Accordion offers consulting services and technology that help portfolio company finance chiefs measure, monitor and report the many different financial and operational metrics that their private-equity shareholders typically require of them.
“CFOs’ jobs are becoming more and more complex and they’re often under-resourced,” Mr. Leopard said. Demand from private-equity firms for CFO services “is expected to grow by more than three times over the next five years,” he added, noting that provides “really strong tailwinds” for Accordion’s growth.
Most of Accordion’s revenue expansion over the past four years came through internal efforts rather than acquisitions, Mr. Schneller said. Partly the growth stemmed from rising demand for outsourced services from fund managers seeking ways to enhance the value of companies they bought at relatively high prices.
“Private-equity firms are evolving in terms of how they create value,” Mr. Schneller said. “You have to find ways to generate returns.”
To Michael Choe, Charlesbank’s managing director and chief executive, investing in Accordion offered a way to capitalize on the growth of private equity and the rising demand for financial integration among acquired businesses. As more and more companies are bought out, there is a burgeoning need to transition those businesses to financial-reporting systems that mesh seamlessly with those used by their private-equity owners, Mr. Choe said.
“That is a persistent and complex need and a persistent and complex pain point for private-equity investors,” he said. “What we loved about Accordion was that it was the first company we saw whose mission in life was focused on this unmet need.”
Charlesbank also recognized the significant growth potential for Accordion as the private-equity sector expands, Mr. Choe said.
“We would estimate there are 10,000 portfolio companies of PE firms within Accordion’s addressable universe” of potential clients, Mr. Choe said, adding that the market is expanding at a rate of 10% to 15% annually. With Accordion, he said, “we’re addressing a small percentage of those [companies] today.”
When the time came to exit Accordion, FFL supported Mr. Leopard as he traveled a familiar path: finding a new backer from among his company’s clients. Both FFL and Charlesbank have employed Accordion’s services for years and became familiar with the company through that exposure.
Before making its October 2018 commitment to Accordion, Mr. Schneller said FFL had developed an investment thesis focused on its own industry.
“The theme initially was around professional-services companies” that supported private-equity firms, he said. FFL deal makers then looked at their own service providers and asked themselves which were doing the best job.
“Accordion was at the top of the list,” he said. “They’re special.”