Introduction
2020 was a challenging year for households and businesses alike. Main Street America experienced hardships not seen in decades as jobs evaporated and unemployment peaked at nearly 15%, leaving many home- and business-owners questioning how they were going to pay their bills. Founder-owned and led businesses across the country – the principal recipients of growth capital at the core of Camden’s investment strategy – sought out capital partners to help support the businesses they have worked tirelessly to build.
Growth Equity deal value has roughly tripled since 2009, instilling itself as a main stay in private equity portfolios, and the strategy was uniquely positioned to take advantage of many pandemic-related shifts. The adoption of technologies across eCommerce, education, healthcare, and organizational/workflow management was accelerated by the onset of the pandemic and are themes expressed across Camden’s portfolios today.
It is with gratitude and humility that we look back on 2020 and the ways we were fortunate enough to have worked alongside many of you in supporting your personal, business, and investment endeavors.
2020 Year in Review
Across the private equity markets deal value sank to its lowest point in seven years early in Q2 only to recover more than 2x its value by the end of Q4, ending the year with the highest reported deal value in more than a decade. In public markets, by the end of March the S&P 500 declined 35% off its February-highs, only to rebound to pre-pandemic levels by the end of the year.
Investors in both public and private markets rushed to take stock of their portfolios as the COVID-19 pandemic took hold. In many instances, LPs paused private market commitments until the extent of the pandemic could be assessed. Once market participants felt comfortable asset prices had reached a floor, buoyed by the intervention of the Fed, Treasury, and Congress, investment activity picked up in earnest in the second half of the year showing strong positive momentum heading into 2021.
Camden followed a similar cadence as the broader markets over the course of 2020. At the onset of the pandemic we worked to ensure liquidity and cash reserves at our portfolio companies, taking a hands-on approach in financial planning and helping to enact cost-reduction measures. We worked with our companies to assess customer churn risk and design ways to incentivize customer re-ups and cross-sales. In June we closed Fund VI with $100M in commitments. With dry powder to deploy, we found attractive assets to add to our portfolio, closing on three new investments in the second half of the year, complementing one deal we closed in January.
For over 15 years we have focused on investing in technology-enabled and SaaS businesses with recurring revenues, at attractive entry multiples. Though our approach has evolved on the margins, our discipline has not wavered and ultimately proved to be accretive across the four new investments we made this past year – three in the Technology & Enterprise SaaS sector – DialSource, eFileCabinet and Volly – and a business services company in the Healthcare space – Roshal Imaging Services. The four acquisitions were completed at an average entry price of 3.5x EV/revenue.
Technology and healthcare businesses make up approximately one-third of all PE-related deal activity and remain highly attractive to acquirers, as both equity and debt remain readily available. Camden was the beneficiary of these trends in 2020, as we sold three assets – Katabat, Fortfied Health Security, and Santa Rosa Consulting – that serve the technology and healthcare industries. In 2020, the median buyout multiple continued to steadily creep up, increasing to 14.1x EV/EBITDA, up from 12.7x at the end of 2019. The combination of healthy interest and readily available financing sets the stage for potential attractive exit valuations for companies that can demonstrate steady double-digit growth while generating positive cash flow.
As we head into 2021, we remain optimistic about our ability to continue to find attractive partners to work with in deploying capital, as well as helping our existing portfolio companies grow, ultimately maximizing their value and impact in their respective sectors. Concurrently, we are excited to continue building and deepening our relationships with LPs, demonstrating the attractiveness of growth equity as a strategy that sits between venture capital and buyouts.
Thank you for your continued support and partnership. We hope you all remain safe and healthy in the new year and look forward to seeing you all in person in the near future!
With our warmest regards,
The Camden Partners Team
Market Commentary Source: "PitchBook 2020 Annual US PE Breakdown Report," PitchBook, Inc., January 2021.
About Camden Partners
Founded in 1995, Camden Partners is a Baltimore-based lower-middle market growth equity firm. For over 25 years Camden has consistently focused on investing in growth-stage companies with enterprise values ranging from $10 million - $150 million. Leveraging their domain expertise in technology & enterprise SaaS, business services, and education, Camden partners with their portfolio companies to grow revenue and increase cash flow by setting organizational strategy and providing the growth capital to expand operations. Camden's target equity checks range between $5 million and $15 million, allowing them to be a preferred partner of choice for owner-operators of businesses who maybe dilution sensitive.