Changing Worlds sale means another payday for TVC

09 November 2008  By Dick O’Brien

The sale of mobile software firm Changing Worlds to US company Amdocs represented another big return for Trinity Venture Capital Holdings, the second since its flotation last year.

The $60 million (€46.9 million) paid by Amdocs for the Irish company meant TVC will net up to $16.4 million for its 28 per cent stake. Of this, $11.6 million will be paid immediately, with the balance potentially coming in earn-out over the next two years.

The payout represents a 3.7 times return on TVC’s original investment, and a 1.3 times return on the valuation it placed on its investment at March 31, 2008 in its audited accounts.

While TVC enjoyed a big payday, other stakeholders in Changing Worlds also did very well. Clients of Merrion Stockbrokers stood to earn up to €1.7 million, while Enterprise Ireland will net near €900,000 and UCD should earn up to €2.9 million.

The firm’s founders and executives also retained substantial stakes. Founder and chief technical officer Paul Cotter could earn up to €11.3 million for his 18.9 per cent stake, while VP of sales and marketing Vincent Ryan stands to net €4.7 million for his 7.9 per cent shareholding. Chief executive David Moran could earn up to €3 million for his 5 per cent stake.

The deal is the second big disposal TVC has undertaken since its flotation. Last year gaming software firm Havok was sold to Intel in a $110 million deal. TVC’s stake in the company netted it $21 million from the sale, $17 million of which was paid up front with the balance coming in the form of earn-out. In that case, the total paid to TVC represented a return of more than twice the valuation of its investment at the time of flotation several months earlier.

Despite these sales, TVC still has significant interests in the Irish high-tech sector, with stakes in Aepona, Audio Processing Technology, CR2, Lightstorm, Rococo Software, Valista and listed financial compliance software firm Norkom, among others.

Despite the successes of some of its investments, TVC’s share price has slipped quite a bit. Floating near the €1.50 mark, the company was trading at around e0.43 late last week.

In part, the company’s fortunes have been tied to its two quoted investments, Norkom and UTV Media, and any decline in their value will affect TVC. However, according to Davy analyst Stephen Furlong, stripping out cash and the value of the latter two implies a negative valuation for its dozen or so unquoted investments.

‘‘This is clearly mis-priced, as the company’s track record and this latest transaction prove," Furlongs aid.

While executive chairman Shane Reihill may have the Midas touch when it comes to picking tech sector winners, the company is understandably now shifting its focus to insulate itself from the exposure that comes from being so narrowly invested in one sector.

Reihill has already flagged that the firm wants to move towards a core of four or five key investments and away from technology.

As a result, most of its existing portfolio will be sold off in the next three years. In other words, expect to see more disposals at regular intervals from now on.