TSXV-listed Tio Networks acquires Fund III portfolio co. Softgate Systems

The news came out earlier today that TIO Networks (TNC:TSXV) has acquired Softgate Systems, a Wellington Financial Fund III portfolio company. Based in New Jersey, Softgate provides consumer retail bill payment solutions in dozens of U.S. states. We’ve been in for more than three years, successfully partnering with Joe Allegra of Edison Partners and Steve Piaker from Napier Park Global Capital. Congrats to Rick Auletta and the rest of the Softgate team on the pending deal.

If you’ve lost track with the summer and all, this is the third portfolio co. from our 2006-vintage Fund III to be acquired since March. Constellation/InterAct, Espial/Bluestreak, and now Tio/Softgate. Interesting that all three acquirers are publicly-listed in Canada, while two of the targets are U.S.-based tech firms. As we tell our LPs, it really has become one market.

Here’s the TIO release:

TIO Networks Corp., (TSX-V: TNC) (“TIO”), North America’s leading cloud-based bill payment processor, today announced it entered into an arm’s length agreement (the “Acquisition Agreement”) to acquire Softgate Systems, Inc. (“Softgate”), a New Jersey corporation and a leading provider of consumer retail bill payment solutions. The acquisition is expected to close later this year subject to satisfying applicable regulatory approvals and satisfaction of customary closing conditions.

Total value of the transaction is approximately USD$31 million consisting of: (i) A cash component of up to USD$5 million; (ii) A USD$5 million promissory note (subject to adjustment); (iii) issuance of 25 million TIO shares to the Softgate Shareholders; and (iv) assumption of approximately USD$2.5 million of net debt based on balance sheet at signing.

The transaction is transformational and positions TIO as the largest North American provider of walk-in bill payment services, through its wholly owned subsidiaries which would include Softgate, as well as making TIO one of the leading providers of payment processing and receivables management to national and regional utility, wireless, and cable bill issuers in North America. With the addition of Softgate, TIO will have an augmented national platform from which to provide extensive non-bank financial services to the unbanked, under-banked, and unhappily banked millennial population.

On a pro-forma basis the combined companies have trailing 12-month revenues of more than CAD$100 million. Softgate’s calendar year 2014 revenues grew 18% to USD$36 million as compared to the previous year. TIO expects that the enhanced processing scale of the combined companies as well as revenue and integration synergies will generate USD$5 million in incremental EBITDA per year.

“We’re very excited to welcome Softgate as well as its valued management, employees, partners and clients to the TIO Family”, said Hamed Shahbazi, CEO of TIO Networks. “TIO and Softgate have been commercial partners for more than eight years, and we have been very impressed with how the company has evolved and built a well-diversified national network of walk-in locations. This is a significant step for TIO and will be a launching point to bring our services to a much larger segment of the United States. TIO and Softgate was always a natural combination based on our cultural alignment and our years of commercial collaboration.”

“We’re excited to join forces with TIO and create a new emerging competitor in the multi-channel bill payment and receivables processing marketplace,” said Rick Auletta, CEO of Softgate. “We look forward to working with the TIO team to meet the growing financial needs of bill issuers across the country. Between our respective competencies, it is clear that both TIO’s and Softgate’s customers will really benefit from the skill and scale enhancements brought about by this unique combination.”

In addition, TIO has agreed to appoint Joe Allegra from Edison Partners and Steve Piaker from Napier Park Global Capital to its board upon the closing of the transaction.

“We’re looking forward to joining TIO’s board and helping the company continue its growth path. TIO’s team has shown a strong ability to allocate capital smartly and grow shareholder value” said in a statement issued by Joe Allegra and Steve Piaker.

Financial Technology Partners LP and FTP Securities LLC served as exclusive financial and strategic advisor to Softgate in this transaction.

MRM