Puma Private Equity navigates Covid and war to deliver 2x multiple return on Tictrac investment

Having invested £5m of equity into London-based wellness app, Tictrac, in 2020, Puma Private Equity managed to achieve a 2x money multiple return just two years after a frenetic investment period bookended by a global pandemic and the largest military attack in Europe since WWII.

Tictrac provides large enterprises, including blue-chip insurance companies and health organisations, with software and services that allow businesses to learn more about their customer and employee’s health and wellbeing. Puma’s exit was prompted by a bid by Canada’s Dialogue Health Technologies, that provided the investor with a 38% internal rate of return on investment in a transaction valued at approximately £35m.

Puma closed its investment in Tictrac around two weeks after the first wave of Covid hit the UK and just as the country was entering its lockdown period. Given the circumstances, Tictrac was never likely to be a typical investment period for Puma.

The first six months was spent focused on value preservation in an environment of rapidly changing economic outlooks and regulatory and policy change, Rupert West, who heads Puma Private Equity and oversees all aspects of investment and portfolio management, said. “This meant we had to go through the early stages of the investment with management in a very accelerated fashion, with the added challenge of having to do so via conference calls and video links.” A further challenge was encountered by not being able to sell direct or in person due to covid restrictions.

Despite these significant hurdles during the early stages of the investment, a substantial amount of work was spent on gathering customer insights. The nature of Tictrac’s business revolves around enterprise sales involving large multi-year contracts with large customers, meaning it was essential to fully understand its clients. “There are only so many of these large enterprises in any particular vertical, so customer insights are imperative in order to turn each client into a competitive advantage, extracting insights that aren’t available to competitors,” West said.

To this end, Puma worked with management to build dashboards for each customer to identify how Tictrac scored, detailing what worked well with the service delivered and what worked less well, he added. “This also helped us understand how they used the product, how they felt about or rated the product, which led us to better know how Tictrac could best allocate its resources to maximise the probability of retaining these clients that underpin the entire business.”

From its findings, Puma concluded there was a good level of satisfaction among customers, but also identified some danger zones.

Puma places a significant amount of value on three particular strands of focus during its value creation period across portfolio companies, West explained: that of people and culture; information and systems; and strategy building.

Puma was involved in all the key hires that took place at Tictrac, helping management fully articulate the role and its requirements, ensuring candidates were a cultural fit by making psychometric tests available, and being part of the recruitment exercise.

Meantime, the company’s strategy building was all undertaken inhouse, West said. “Normally, we don’t bring in third parties for the first six-12 months of our holding period because we want to own a very deep relationship with management and the best understanding of the business that we can.”

Because phase one of Puma’s investment was centred on customer understanding and customer retention through the early parts of Covid, only afterwards was it able to move into looking at growth and future enhancements that could optimise the product. This was all led by the feedback that was gathered from its earlier work on customer understanding.

Puma explored other avenues, such as stepping down from selling only to enterprise-sized customers to include smaller contract sizes. “As an ESG initiative to coincide with the times spent in lockdown, we extended free trials of the product to a number of public services.” TfL (Transport for London), for example, was given free use of the app for their workforce’s wellness during the pandemic. “As well as being a good initiative, it was also used by us as a trial to see if selling the product on a SaaS basis would work,” West explained.

Despite Tictrac being atypical of Puma’s usual investment period, which usually spans five-seven years, it was still able to navigate its way through a value creation plan, albeit one that experienced numerous changes along the way.

“Working on a three-year plan is very different to working on the first three years of a seven-year plan,” West said. “A business needs time to realise the work that has been put in during a holding period otherwise a buyer can easily dismiss effort that has been placed on building growth and driving transformational change, but which has not yet translated into revenue or EBITDA.”

The circumstances under which Puma invested changed the outlook and dynamic of cash burn, for example, meaning it needed to reassess things such as follow-on investment cycles, West said. With this came additional challenges. “We had to repeatedly redraw plans due to Covid. In the early months, when so much policy change was going on, forecasts had to be altered on an almost weekly basis across our portfolio. This demonstrated just how dynamic and nimble an investor has to be. There was a heavy period of value stabilisation and retention before the value growth stage of investment could begin.”

Not only did Covid present challenges at the beginning of the process, but Puma’s exit was also conducted amid challenging conditions as it began on the eve of Russia’s invasion of Ukraine. “It was not the easiest time to conduct a sales process as war was breaking out while Tictrac’s development teams were in Ukraine under incredible strain,” West said.

As a pan-sector investor, Puma benchmarks its portfolio companies’ performance quite broadly. “We benchmarked Tictrac as a large enterprise software sales business as opposed to a business operating in the wellness sector,” West said when describing its eventual exit. “We take this approach so as not to potentially get caught up in trending hot sectors that can often draw attention away from the fundamentals of a business. It provides us with a broader viewpoint.”

During the exit process, Puma helped coach the management team alongside FinnCap Cavendish, which Puma introduced as sales advisor.

“We recognised that the eventual buyer would make a good home for the company and be able to advance its business’ product and sales model,” West said.

There were strands of the investment thesis that were not executed because of the truncated holding period. But these did form part of Puma’s sales pitch, where it was able to detail upsell and cross sell opportunities that could be explored, for example.