Good day, and thank you for standing by. At this time, all participants are in listen-only mode. Welcome to the 3i Group PLC Capital Markets Seminar. After each presentation, there will be a question and answer session via the conference call, and instructions will follow at that time. Participants can also submit questions through the webcast page using the Ask a Question button. Please be advised that today's conference is being recorded. I would now like to hand the conference over to the CEO of 3i Group, Simon Borrows, to open the presentation. Please go ahead.
Good morning, and welcome to our Capital Markets Seminar. I am Simon Borrows, Chief Executive of 3i, and I'm joined today by James Hatchley, our Group Finance Director, and Silvia Santoro, our Investor Relations Director. I'm also joined by some executives from our Private Equity team, who I'll introduce shortly. The main purpose for this Capital Markets Day is to tell you about two of our private equity investments, Audley Travel and Constellation, and more about our approach to investing in the services and software sector. The agenda for today is set out on this slide. There will be an opportunity to ask questions at the end of each session, as well as for more general Q&A at the end. But before that, I intend to give you a brief update on the 3i portfolio.
We have completed our September semi-annual portfolio company reviews for private equity and infrastructure against a weak macroeconomic backdrop across the U.K. and continental Europe. We're seeing good overall performance across both the private equity and infrastructure portfolios. Action's impressive performance has continued with very strong sales and EBITDA growth. Year-to-date sales at 22nd September of EUR 9.3 billion are 21% ahead of the same period last year. Like-for-like sales growth over the same period was 9.6%. The like-for-like sales growth was driven by customer transactions and strong sales of everyday necessities. We expect operating EBITDA for the 12 months to the end of September 2024 to be circa EUR 1.8 billion, compared to EUR 1.53 billion at the end of September 2023, an increase of 23%.
Cash generation has continued to be strong, with cash balances at 22 September 2024 at EUR 779 million. Action has now added 179 net new stores in the year to date and remains on track to deliver or exceed 330 net new stores in 2024. In the broader private equity portfolio, Royal Sanders and European Bakery Group continue to perform well. Customer demand is also driving a recovery across the healthcare assets. Audley has continued to see very strong growth, and the software and IT-related assets in the portfolio are showing positive momentum. We're also seeing an improving trend across some of the discretionary consumer assets, and MPM continues to perform well. A number of the assets which experienced challenging operating conditions last year have been returning to improving trading trajectories.
Wilson has, however, yet to see any material upturn in the recruitment process outsourcing market. Okay, on to today's presentations. First up is Rémi Carnimolla, who heads our services and software sector. He is a 22 year-old veteran at 3i and is based in our Paris office. Next will be Marc Ohayon, another partner from our Paris office, who will brief you about our most recent investment, Constellation. The final presentation will be from David Stephens, a partner in our London office, who will tell you about Audley Travel's amazing journey over the last few years. I'll now hand over to Rémi. Thank you.
Thank you, Simon. Good morning, everyone. On this first slide, we show the leadership team of a sector. The four of us, we cover all three geographies, and our objective is to invest in all. We collectively decide on investment themes, and we push origination, and we lead the prioritization process. We have a strong focus on pooling expertise and intelligence across all geographies. For instance, Marc in France is connected with the largest IT services players like Capgemini and Sopra Steria. Michael in Germany is our expert in SAP ecosystem. And of course, Rahul in the U.S. is at the forefront of innovation and tech leaders. I'm going now to present our investment strategy in services and software. The first important message is that we are selective and disciplined. We focus on three segments only: IT services, tech-enabled outsourcing, and mature software.
I will present tech-enabled outsourcing and mature software, and Marc will deep dive in IT services. But first, I want to highlight that across these segments, we look for the same type of companies. By and large, we focus on the picks and shovels type of companies and not on the gold miners in technology. We look for profitable and cash-generating companies. This is important. We look for established companies that generate cash. We look for growing markets, but we avoid technology risk. We want to benefit from the digitalization trend without taking the disruption risks. We look for companies we can scale organically or through buy and build. Later today, you will hear a lot about bolt-on and buy and build.
This is a strong theme in our investment strategy, as not only it enables to average down our entry multiple, but also to create value through operational and commercial synergies. We are disciplined on valuation and careful on the multiples we pay. Regarding debt leverage, we are consistent with the rest of 3i. We are conservative on leverage. We rather use senior debt and don't use second lien, for instance. And last but not least, in all these segments, we have successful experience and track record. Let me start with tech-enabled outsourcing. It is a segment where 3i has a deep and consistent track record of value creation, and we have strong conviction. We focus on outsourcing services with a tech component, which gives a competitive advantage, be it on the cost side or on the quality of service side.
These models play very well with what 3i likes and is good at. We focus on markets with secular growth backed by outsourcing trend, where global reach for delivery is a key moat, and as you know, internationalization is a key strength of 3i. These markets are often fragmented, and a buy-and-build strategy plays well, both financially and operationally. Most of the time, the revenues are contracted, allowing for a high degree of visibility and resilience, and finally, these companies are cash generative and can fund both the senior debt and their acquisitions program. We have a strong track record for having invested in several types of these companies with great successes. I will present to you three examples to showcase how we bought, built, grew, and sold successfully in the sector.
Trescal, Element, and Atesteo, they all changed in scale during our ownership period and are good examples of our approach and capabilities. Element. Element provides testing of material and product for OEMs and their supply chain. It is a critical service with recurring revenues. We carve it out from stock. When we invested, it was a mixed bag of services. We refocused on material testing and on two high-growth verticals. We pushed hard on the buy and build as the market was extremely fragmented, and significant commercial and cost synergies were extracted. In parallel, we have worked out several productivity and pricing initiatives, which resulted in improving the EBITDA margin by eight points. Element was very cash generative, and this allowed to fund the acquisition and reduce gearing.
We sold the business five years later with an EBITDA that had quadrupled, yielding 4.5 x money multiple and 36% IRR. Since then, it continued to grow significantly. Today, it is a 1 billion revenue business. It's one company that we should have kept longer for its compounding growth. Trescal. Trescal case is similar to Element. Trescal provides calibration services for measurement equipment. Any equipment that measures something needs to be regularly calibrated for being accurate. Calibration used to be done by OEMs, but it was progressively outsourced to independent players, such as Trescal, after the warranty period. Part of Trescal's success was to move away from the traditional manual calibration and to use technology to automate the calibration and all the processes around. It allowed massive savings, and we have doubled down on it as it enabled a strong cost advantage.
When we invested, Trescal was strong in France, starting to be European. We made our first step in the U.S. three months only after we bought Trescal. We continued with more buy and build. Like Element, the market was fragmented and made of small, unsophisticated shops. We have accelerated and structured the M&A function. We sold it less than three years later, yielding 29% IRR. The same management team pursued the same strategy, addressing Asia after the U.S. It is today the global leader. Atesteo. Atesteo provides testing of drivetrain for the automotive industry. These services are rendered on a long period, which gives visibility to the revenues. When we invested, it was very much a diversified engineering company. We stopped all the engineering activity and focused exclusively on testing for the automotive industry. We rebuilt the company around it and fully redefined the cost base.
We established a company in Asia, where the value add was much higher than in Europe. In Europe, OEMs prefer to analyze the results of a test by themselves, whereas in Asia, Atesteo was supporting its Chinese OEMs in the analysis and troubleshooting. We have created a strategic value that pushed the investment vehicle of the Schaeffler family, very active in automotive, to buy it from 3i, yielding a 4.4 x money multiple and 48% IRR in four years. I move now to a company that is in our portfolio, Wilson. Wilson provides recruitment process outsourcing services focused on Fortune 1000 customers. We partnered with founder John Wilson. It was well established in the U.S., but with a limited international presence. We established a company in Europe and in Asia, expanding the offshoring capabilities of the group.
We completed two major acquisitions for the group, notably Personify. We expanded capabilities in the life sciences and healthcare end markets. The business continued to gain market share, expanding by 47% its number of core RPO customers and becoming the number one rated global RPO player in this industry. Obviously, the unemployment market has been tough and impacted trading at Wilson, but the company kept on gaining new customers. We are confident it will come back strongly, and it's just a point in the cycle. I move now to mature software. Software is everywhere today. It's a very large segment with numerous investment opportunities. But we don't want to take technological risk. We deliberately focus on mature software. I insist on mature. We look for software which are already well embedded into a sticky customer base. Similarly, we target companies that are profitable and cash generative.
Cash generation, again, is very important to us. Our way to create value is to help them transitioning to SaaS or to expand into the U.S. The sticky customer base allow to take the risk of a transformation into SaaS revenue models, which is a real value creator. It gives more visibility on the revenue base and improves margins. Finally, it's a very liquid market with a lot of consolidation. We have rather focused our investment on what is called the office of the CFO softwares, where large cap companies like insightsoftware are actively consolidating the market. Magnitude ticked all the boxes of this strategy. It was sold to Insightsoftware. xSuite is also operating in the office of the CFO ecosystem and is well on track in its transition to SaaS. Magnitude. Magnitude is a typical case study of how we create value in software companies.
Magnitude was a suite of software products designed for a finance function, sitting on top of SAP's ERP. Basically, a typical ERP covers 80% of what a CFO needs, and Magnitude or xSuite, that we will see later, help covering the remaining 20%. When we invested, it was a very traditional business with revenue model focused on perpetual license and maintenance, with a rather poor commercial organization. We felt there was an opportunity to move to SaaS revenue model and to professionalize the sales function. To achieve these two major transformations, we have completely revamped the top management team. As you can see, it has paid off with a 10% CAGR in our revenues and a faster EBITDA growth. Finally, we caught insightsoftware's attention, who has actively consolidated the office of the CFO software landscape.
xSuite generated 2.6 x money multiple and 47% IRR. xSuite. xSuite is, broadly speaking, a replication of Magnitude. xSuite is also a software for finance function sitting on SAP's ERP. When we invested, the product suite had high reputation and a very loyal and sticky customer base, but the revenue model was the old traditional one, a perpetual license with some maintenance. We saw the opportunity to transition to SaaS. Since investing in 2021, we have ensured a transition to a new CEO. We are very well engaged into the transition to SaaS revenue model, and you can see on the graph that the annual recurring revenues has grown by 18% year-on-year, and as a result, the share of recurring revenues has improved from 40% to almost 54%.
In parallel, we have boosted the U.S. capabilities to push on this market. Finally, we have just completed the acquisition of Tangro, which completes well the group in terms of module and customer base. Last but not least, we believe xSuite will be a target of choice for the large consolidators. As on Magnitude, the office of CFO market actively consolidates, with larger platforms looking for companies of a size and same position as xSuite. We are very happy and confident about this investment. I hand over now to Marc, who will present IT services.
Hi, everyone. IT services are at crossroads between tech-enabled services and software. It's a core area of focus for 3i. IT services companies allow their customers to adapt to new technologies. We see it as a good market to surf on technology without bearing the tech disruption risk. Once again, we focus on the picks and shovels segments and not on the gold miners. In this market, we find deals that have all the typical features of a 3i deal. Large markets with numerous investment opportunities and secular growth, driven by digitalization in the case of IT services, fragmented landscapes, providing opportunities for active buy and build plays, and a large universe of exit opportunities allowing a liquid market. In IT services, the consolidation activity is intensive and provides us with numerous exit options.
We have been very active in this market through Evernex, MAIT, and Constellation, with intensive buy and build plays on each. 11 add-ons on MAIT, six on Evernex, and one on Constellation. Starting helicopter view on why we spend time on IT services. First, the size of the market. It's worth $5 trillion globally, growing between high single digits to mid-double-digit rates, depending on the segment. Second, the strength of the targets, a lot of opportunities. There's a lot of opportunities in all three geographies. Growing companies with decent margins and cash generation, which is important to us. Third, it's value creation opportunities. We have the ability to add visibility through additional recurring revenues, but also to actively consolidate markets through buy and build. Fourth, which is a key point for us, the liquidity of the market. The market as a whole consolidates actively.
The larger players acquire the smaller players. We aim to build businesses that we can sell to these trades with valuation multiple rerating. The market is large, so we focus on specific investment themes where we already have exposure and first-hand knowledge through our investments. The key requirement is to focus on segments where we can find targets that do not compete neck to neck with giant IT services players. Typically, IT services for mid-sized customers is a safe haven. The likes of Accenture, Sopra Steria, and others do not focus on this segment because the customers are generally too small. On the investment themes, examples include software vendor integration and support services. It's companies that do the integration and support on behalf of software vendors like SAP or Salesforce. It's a real need in the market, and growth is natural when you focus on the right software vendors.
This is our play on AI. The second is cloud transition and infrastructure services. A broad thesis in IT is that chief IT officers prefer to outsource everything that is related to IT infrastructure. It creates opportunities for managed services on cloud and maintenance of IT infrastructure. Constellation and Evernex are sweet spot in this segment. Another example is application and software development, which is an area of growth in IT services. Beyond the larger software pieces like ERP or CRM, which are pretty standardized, there is a real need for smaller and customized software pieces, which are adapted to the needs and functionalities of the customers. This need for specific software development is growing, with a fragmented market on which we focus. Over the years, we built a web of ecosystems that allows us to improve our origination and to further differentiate 3i in the market.
There are three layers in this web of ecosystems. The first one is the 3i Services and Software team. We have a systematic approach in all 3i geographies. We act as a single team and pool expertise to review deals, originate, and implement value creation plans. For example, post-deal, we use systematically the same value creation playbook in our IT services companies. The second layer is portfolio companies. As you know, 3i executes active asset management in its portfolio companies. We know our portfolio companies and their management teams very well, and there is a wealth of connections available through our portfolio that allows us to get introductions to their network and leverage their capabilities. For instance, we unlocked Constellation thanks to Evernex founder, who is a trusted advisor of Constellation's CEO. The third layer is a bench of functional and sector experts.
There has been a lot of focus these last years to get high-profile business leaders in all our areas of focus, to know where to invest and get their perspectives. For example, we partnered with Marty Cole, the former president of Accenture Technology, which helped us on magnitude. It's critical to gain time and, more importantly, to support management teams in value creation plans. In IT services, our value creation framework is based on four pillars. First, build a platform. It's a key pillar in this market. This implies active consolidation at accretive multiples and to demonstrate the platform effect by effectively creating value on the add-ons. Second, recurring revenue exposure. It's important to add visibility to the business and is valued by the market, and it's possible in a lot of IT services businesses. Third, enhance the services portfolio.
In all companies, we implement a product management roadmap to know where they are going and how to get there, allowing to capture more share of wallet of customers and increase customer stickiness. Fourth, create operational leverage to improve margins. Areas of growth include nearshoring or automation of tasks through artificial intelligence tools, for which we see very interesting use cases in our portfolio. Within our portfolio, we apply this framework to Evernex, which grew by a 17% CAGR since two thousand and nineteen when we invested. As a reminder, on Evernex, the business is about maintenance services for the data center industry. It is critical for data centers to have equipment up and running at all times, and Evernex provides these maintenance services all over the globe for enterprise customers.
When we invested, it was a leader in France and Italy with a good level of quality of service, and it was starting its digitalization and structuring phase. Today, it is a global leader in maintenance of data centers, with a value proposition well anchored into sustainable IT. Through the lens of our framework, here are the main results achieved on Evernex. Six acquisitions completed, including one transformative, which allowed to secure European leadership. The cash generation of the business allowed to finance parts of the six acquisitions. Recurring revenues grew from 72% to 77%, with maintenance services growing at a 19% CAGR since entry. We expanded the services of portfolio to circular IT and to backup as a service to increase share of wallet at customers.
We improved the EBITDA margin with the development of nearshoring capabilities and the use of digital and artificial intelligence tools to optimize field operations. Evernex also set up internal training academies to develop the company's talent pool. MAIT is another case study of how we create value in IT services. MAIT is active in software integration and support, notably focused on product lifecycle management software, also known as PLM. Product lifecycle management software handles every data aspect related to the manufacturing process of a product. Every single data from conception to development until maintenance and end of life management is stored in the software, and it impacts all the product's life. It is particularly critical for industrial and manufacturing companies, and this is the type of companies MAIT supports on PLM, but also on ERP and data management.
When we invested in MAIT, it was a Germany-focused player, an established partner for PTC and Siemens, two leaders in PLM, and it was well entrenched in the German Mittelstand landscape. During our ownership, revenues grew by 29% CAGR, and it became the leading DACH player on PLM. Since our entry, the business has significantly, significantly changed. It's a confirmed platform. We completed 11 add-ons since entry, with well-established integration capabilities and proven value creation on the add-ons. We have more recurring revenues, 54% versus 49% at entry. The services portfolio is more robust. We expanded delivery in Austria and Switzerland. We expanded in own software modules that are complementary to PLM, and we've proven the operational leverage with a three-point improvement in EBITDA margin since entry. Constellation is our latest investment in IT services.
The company does around EUR 110 million of sales and north of EUR 22 million of EBITDA. The business is predominantly based in France. It's its sweet spot in our cloud transition services investment theme. It's focused on mid-market and enterprise customers, which are big enough to have decent IT budget, but are out of scope for the large IT services companies. Constellation runs their IT infrastructure, notably their hybrid cloud and cybersecurity. It has a high degree of visibility on the revenue base. 60% of revenues are secured through three to four years managed services contracts with monthly payments. To give an explanation of the typical IT infrastructure of a mid-sized company, you may want to think of it as a plant that IT directors need to manage on a daily basis.
The whole IT of a company rests on this infrastructure, so making sure it works is critical, and this is why they outsource it to specialized players such as Constellation. The IT infrastructure rests on three components: on-premise, on-premise data centers, which is at the bottom of the page. It's the traditional type of data center, and it is key to host sensitive data and is the cheapest option in terms of hosting. Public cloud, which is provided by the likes of Amazon Web Services and Azure. It's very flexible, used for all applications that need peak capacity quickly, like e-commerce websites, for example. And the last one is private cloud, hosted externally with third-party providers and is more customized to the client's needs than public cloud. Coming back to Constellation, it operates on the French market.
The market is worth EUR 20 billion and is expected to grow by 9% per annum over the coming six years. There's plenty of room to significantly grow Constellation in this market. We know the French IT managed services market very well. Constellation was our top priority in this market as it matched three key criteria. First, it was a proven consolidation platform. They completed 19 acquisitions since 2016, all integrated well, and importantly, they delivered value on all these acquisitions. Second, track record in growing recurring revenues. Recurring revenues grew 16% CAGR between 2019 and 2023, with a real ability to expand the revenue base on existing customers. And third, was the coherence of the services portfolio and the quality of service.
We ran a number of surveys to IT departments, and they were unanimously praised by customers for quality of service, high level of expertise on Microsoft Azure, and key cybersecurity platforms. ESG is important to our investment decision process. In this field, Constellation is one of the most mature companies in the IT sector. It is officially a purpose-driven company, and their purpose is built around fighting against climate change, notably in the IT sector. They've designed several offers to reduce carbon consumption of their customers, such as IT life extension or roadmap for low carbon IT.
It is a leading advocate within the French tech sector with Tech for Climate, which is an event to mobilize the French ecosystem on climate change, which gathered 2,000 decision makers in IT in 2024, and they implemented net zero targets and also set carbon reduction KPIs at employee level. We acquired Constellation on a bilateral transaction for a majority control of the company, thanks to the trust built with the founder and CEO. It is a case study of how we leverage our web of ecosystems to originate and of the strengths of the 3i model to convince founders to partner with us. The web of ecosystems allowed us to identify the company very early and engage with the founder two years ago. We leveraged our access via Evernex notably, which is close to Constellation.
We also leveraged our ecosystems of experts to do pre-work on the deal before engaging with Constellation, and we knew the company very well before engaging. This allowed us to get in there at the right moment. Constellation was majority owned by its founder and management, and it had exhausted its minority sponsors' capabilities. It is something we see increasingly often in the PE market as fundraising is more difficult. Constellation was looking for a new partner. 3i's model was very convincing to the founder. Permanent capital, which allows availability of funds, and similarly, he was reassured by our focus on portfolio to support him in his growth journey. We brought equity, expertise, and active support. He chose to partner with us on a bilateral transaction, and the founder and management highly aligned with us, as they reinvested 85% of their proceeds.
Once again, the strategy is built on our framework. First, acceleration of the consolidation. We already completed one acquisition, and there are several ongoing. The depth of the 20 billion market will help us. Second, focus on cyber and cloud recurring revenues, aiming to get to 70% of recurring revenues, up from 60% currently. Third, push on services portfolio by extending their partnerships with tech platforms. Here, our ecosystem will help them get to the next stage. And fourth, create operating leverage. Continue scaling the delivery and back office organization to absorb the growth of the business. We have two non-executive directors who are joining to support them on scaling delivery and get talent management to best in class.
So it's time to conclude. I want to insist on a few important messages. First, we are selective, and we have a focused approach. Then, we want to benefit from the digitalization trend, but we don't want to take technological risk. We look for profitable and cash-generative companies. We are more in the picks and shovels part of this sector. Not only are we careful about the multiples we pay, but we also run extensive financial due diligence to be sure about the quality of earnings, the recurrence of revenues, and the cash generation profile. We are confident we can average three times returns over time by combining organic growth and buy and build. You have heard that in all of our investments, we have created value with a series of bolt-ons. We target fragmented sectors.
We aspire to make two to three new investments per year while keeping our discipline on pricing. As I mentioned, buy and build helps also to average down our entry multiple. Finally, we want to minimize our risk by replicating past deal successes and leveraging our ecosystem. We are very consistent, and we apply the same approach and toolbox in all 3i geographies. Thank you.
Okay, we'll open things up to questions on Software and Services and Constellation.
To ask a question via the conference call, you need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. As a reminder, to ask a question on the phone, please press star one and one and wait for your name to be announced, and also, participants can also submit questions via the webcast on the webcast page by using the Ask a Question box. Please stand by while we compile the Q&A roster. We're now going to proceed with our first question. The question's come from the line of Gregory Simpson from BNP Paribas. Your line is open.
Hi there. Thanks for the presentation so far. Two questions from my side. Firstly, some of the previous exits you've made in this space have seen significant growth and value creation since sale. For instance, I think the private equity firm you sold, Element Two, made 4x on their own exit. So can you give some color on how you think about the decisions to hold and compound versus sale in this space? And then the second question is, it does seem like a lot of other firms have increased their focus on their software space over time, given the appeals. So how are you finding the kind of conditions in terms of pricing and competition in terms of getting to that two to three new investments per year at the current time? Thank you.
Thanks, Gregory. Well, I'll answer the first part of that, and Rémi can take the second part.
I mean, we go through the same process with every exit. We look at where we are relative to the investment case, and we factor in a number of matters, and then we consider what the medium-term growth from this point is. And I suppose we took a more cautious view of the onward growth of Element than perhaps we should have done in that particular case, and that's why we took a decision to sell it. We sold it well, but we didn't quite appreciate the growth that was left in the business to the same degree as the buyer. So, not a good one from our point of view, but we've made up for that since. Rémi, do you want to-
Yes, sure, and you're right. But a lot of our competitors are focused on high growth and not so profitable companies. I insist on we are focusing on the other side of the market, which is more in the peaks and troughs. And we want to stay disciplined in terms of pricing, but also in quality of diligences. In terms of origination, we want to replicate what we have done on Constellation, which is working out relationship with founders over a long period to gain the trust and to be able to have the best diligences process. But also to demonstrate that we can add more than just financial means. We can add capabilities, which again spoke well to the Constellation founder.
So that's why we want to do it. And last but not least, you have seen that we are operating in all three geographies, which mean that we are addressing a very, very broad and fragmented market. So thanks to our local networks and our expertise in this sector, we can unlock some very specific situations.
Thanks, Rémi.
Thank you.
Thank you. As a reminder, to ask a question on the phone, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Participants can also submit questions through the webcast page by using the Ask a Question button. Thank you. We are now going to proceed with our next question. The question comes from the line of Manjari Dhar from RBC. Your line is open.
Hi. Morning. Thank you for taking my question. Just an additional one and maybe a small follow-up, if I may. I suppose my first question, it looks like software and services is only a low single-digit % of the portfolio, the overall 3i portfolio at the moment. I was wondering, I guess, what's the intention for the exposure here? Is this something that you guys are looking to sort of ramp up meaningfully in the near term? And then maybe a slight follow-up from previous questions, on the exit. Do you think that any of the holdings that you currently have within the sector or anything you're looking at could potentially be a candidate for one of the long-term hold buckets of investments?
Thank you.
Thanks, Manjari. Why don't I pick that up? I think the best indication of the size of this sector within the overall non-Action portfolio is the aspiration to do two or three investments a year, really. We don't do over large investments in this sector, but that is the aspiration. That would mean it would be a meaningful part of that portfolio going forward. We'd expect it to be, over time, about a quarter representing of the non-Action private equity portfolio, and we have four sectors. This would be in the middle of the fairway compared to some of the other sectors.
I mean, I would say at the moment it is too early to tell for the existing portfolio as to whether we have any longer term holds. We've obviously learned the benefits of holding things for longer, so we do have a very careful consideration of that when we come to the point of exit. So too early to say, I would say, Manjari.
Great. Very clear. Thank you.
I am showing no further questions, so I will now hand over to Silvia Santoro, 3i's Group Investor Relations Director, to address the written questions submitted via the webcast page.
So the first question is from Nick Johnson, from Deutsche Numis. Does the deep market liquidity in software and services mean you expect to turn the portfolio over quicker and deliver value growth faster than other segments in the PE portfolio?
I think that any exit decision will follow the same process as we have followed historically. We don't want to lose, of course, any window opportunity to sell at the right price. At the moment, as someone said, the market is quite hot with a lot of consolidation happening. But again, we want to create first value. The portfolio is not mature today for quick exit, but we are always scrutinizing what's happening on the market to be sure that we don't lose really any good exit window.
Yeah. Let me add that a lot of consolidation goes on in this market the whole time, so it is a high transaction level market, and if you take something like Magnitude, which we sold in a little over two years, we sold it on that timescale because we thought we were getting tomorrow's price today. So that was the decision behind that.
We have another question from Chris Brown from J.P. Morgan Cazenove. Leveraging your buyout portfolio ex Action is four times EBITDA. Is software and services more highly geared than this? And also, what percentage of the buyout portfolio ex Action is in software and services?
I can take the leverage. No, we don't want to over-leverage these companies. We apply the same strategy for the rest of 3i portfolio. As I said, we avoid, we mainly use senior debt, and we avoid a second lien or this kind of instruments. So same, I would say, strategy than for the rest of the portfolio.
I don't have that precise figure off the top of my head, but I would think it's around 20% of the non-Action portfolio when you look at services and software investments at the moment. But if I'm wildly wrong, we'll send you that figure, Chris.
There are no further questions from the webcast, so perhaps we can go to the next speaker.
Okay, David, over to you.
Good morning. Briefly on the U.K. business before covering Audley in more detail. It is a group of 11 investment professionals, with myself and Rupert Howard leading the team. As shown on this slide, returns have been good, and we have several highly attractive companies in the current portfolio, including the likes of AESSEAL, Tato, MPM, and of course, Audley. We have an interesting current deal pipeline across our core sectors, so we're confident of getting more deals done through the remainder of the financial year. Rather than a diatribe from me describing Audley's approach, I thought it was best to bring it to life with a video showing our unique proposition. So hopefully that has sufficiently whet the appetite to trigger a booking or two from the audience today. Audley was set up in 1996 by two keen travelers wanting to share their own travel experiences.
3i invested in 2015, attracted by, firstly, the compelling market opportunity, including the demographic impact of the silver pound. Secondly, the company's clear market leadership in the U.K. and differentiated service proposition. And third, the huge opportunity to scale the business aggressively in the U.S., very much the 3i internationalization playbook. Our conviction on this U.S. market opportunity meant that we significantly invested in Audley's U.S. business ahead of growth, scaling sales capacity in Boston and rapidly winning market share. At the time of our acquisition, it was only a recent venture into North America, entirely unproven and loss-making. Today, it accounts for a third of Audley's profit. We have significantly strengthened the management team, who have successfully grown Audley into the clear global leader in tailor-made travel, and we have also transformed Audley's technology backbone, ensuring it is a highly scalable platform.
However, the thing that gives me the most pride is the penultimate bullet point on this slide: the response and actions taken during COVID. With COVID, the whole travel industry faced an unprecedented shock. At the time of the original investment, we spent hours agonizing over the impact of SARS, MERS, 9/11 , volcanic ash clouds, and every other possible natural disaster. The impact of these on the travel sector was nothing compared to the reality of COVID, which was an existential threat to the whole industry, with five quarters of zero revenue. The resilience shown by the business and management team was, quite frankly, staggering, and 3i's longer-term and hands-on approach meant that we were heavily engaged in the business throughout COVID. We supported with additional capital, re-platformed the entire booking engine, and managed to retain the top talent in the business.
The investment and support provided ensured that Audley was best placed coming out of COVID, at a time when smaller competitors were going out of business, and is the reason that we have seen such a rapid recovery and won significant market share since COVID. Audley focuses on premium tailor-made travel and has several clear differentiators versus its peers. The company is built on its great country specialists, effectively a team of over four hundred sales heads, many of whom have lived in the destination they're selling and undertake regular familiarization trips, as well as the organization's collective institutional, local knowledge, and database of itineraries. Its market leadership and scale enable it to select and partner with the best-in-class local suppliers, for example, destination management companies and local guides, and ensures it can source the most suitable and differentiated product.
The company is asset light in that it does not own any assets or commit to any inventory ahead of travel. This, coupled with a diversity of destination, serving over a hundred countries, and relative wealth of its clientele, ensures it is well insulated from travel market cycles or changes in consumer preferences, as it can quickly and without significant cost, reroute its customers to other destinations. We've recently seen this with the fires in Canada and the Middle East conflict. This recent market survey highlights Audley's differentiated proposition with an impressive gap across almost every purchasing criteria, particularly around the quality of customer service and country specialist knowledge, the two most important criteria for clients.
Audley's incessant focus on quality and service are well recognized in the market and drive an attractive flywheel, with exceptional client satisfaction, driving strong repeat and referral clients, and I will touch on this again shortly. We were tracking extremely well against our original investment thesis before COVID, delivering on an ambitious business plan. During COVID, and as part of our reinvestment, we took a full rebuy decision and concluded there was still a huge amount of opportunity and that COVID would be a medium-term positive for the business, as clients recognized the value of a tour operator rather than building the holiday themselves with no protection when things go wrong, and also pivoting to a trusted market leader like Audley.
Indeed, many companies that didn't have the financial support of 3i went out of business during COVID, and as I said, we've successfully won market share in both the U.K. and U.S. markets. We have already delivered on the reinvestment thesis, but as outlined on this slide, there remains significant value for either 3i or a subsequent owner. I will now touch on each of these items separately over the coming slides. Firstly, the market. OC&C are forecasting extremely strong growth for Audley's tailor-made market over the next two to three years, with the U.K. growing at around 17% and the U.S. at 23%. This is driven by secular growth trends of a growing, affluent, aging population with greater disposable income, prioritizing spending on experiences rather than products, and increasingly looking to travel.
In the short term, there is also a multiplier effect for long-haul, tailor-made travel, as customers pivot from short-haul destinations that recovered most quickly post-COVID, back towards complex premium destinations, and the market catches up with two to three years of lost growth through COVID. As the clear market leader, Audley is set to benefit from this. Focused on the premium end of the travel market, Audley has a very defensive and scalable business model. I touched on its asset-light nature earlier, but its customer base is also extremely resilient to economic shocks. With average booking values of around GBP 17,000, it is no surprise that the majority of its client base come from the upper income and wealth brackets.
A recent client anecdote to try and bring this to life: "A client new to Audley inquired on a Sunday, booked on a Wednesday, and departed the following week, taking all of our recommendations for a GBP 115,000 trip. He had previously used Booking.com, but is now part of our private concierge business after realizing there was a better way to research and to book travel." As highlighted before, Audley scores well across customer purchasing criteria, and as a result, its Net Promoter Score, highlighted in the center of the page here, and customer feedback are unrivaled in the market. And this drives a highly scalable and attractive repeat and recommend model, which continues to strengthen in both the U.K. and US.
To show you the attractiveness of this flywheel, and using the U.K. as an example, almost 60% of our booking sales are from repeat and recommend customers, who convert at four to five times the rate of a new customer, and typically with higher booking values. Overall, delivering a lifetime value to customer acquisition cost ratio of five to six times. The point being, it is extremely profitable for Audley to acquire new customers. Digital transformation has been a key value driver for 3i throughout this investment. The company has undertaken a complete transformation from a legacy on-premise tech stack to an entirely cloud-first and scalable architecture based off Salesforce and Microsoft. The business is now set up for future growth and will benefit from significant operating leverage going forward.
It has launched a successful companion app for clients, and is currently developing several AI use cases, including a personalized marketing engine, content writing, and itinerary design. Audley's scale allows it to invest ahead of the market in technology, and this will continue to build its defensive moat and competitive advantage. Technology is a critical part of the platform, but only takes you so far with a client that demands an incredibly high-touch proposition. So at the same time as investing in technology, we have invested in Audley's country specialist base. Given Audley's market-leading reputation and strong culture, we've been able to quickly rebound and rebuild the direct staff base beyond pre-COVID levels as the business plans to scale to a one billion plus revenue business.
This investment delivers significant embedded growth, as recent, less tenured hires have lower productivity, but follow a consistent productivity curve across cohorts, as shown in the right-hand chart here. This gives us great confidence on the deliverability of future growth and greater profitability as this sales engine matures. On the U.S. business specifically, when 3i invested in January 2015, Audley was only a startup in the U.S., doing around $20 million of gross booking sales, and it was still loss-making. Our commercial diligence at the time gave us absolute conviction on the attractiveness and scale of the U.S. market opportunity, and we took the decision to double down on that market, significantly scaling the cost base and investing in sales heads well ahead of growth, despite the short-term impact on profitability.
This had the absolute desired effect, taking revenue to over $130 million in 2019 before COVID, and that has now scaled to around $200 million for this year, and about a third of Audley's profitability. What we have achieved in the U.S. has been impressive, but it is still only scratching the surface of what is possible given the scale of the market there and fragmented nature of the customer base, sorry, of the competitor base. Given the scale of opportunity in Audley's core business, the initiatives in this slide are upside to what is already an attractive base case and are at various stages of delivery. I'll touch on a few. Starting on the left, the new source markets. During our ownership, we have been focused on driving significant growth in the U.S. market.
However, if it hadn't been for COVID, we would have entered further markets. We did significant work reviewing potential countries and considering market entry strategies, and concluded that Canada and Australia are the next two markets in order of priority. We recently launched Audley's private concierge service for the highest value and frequency customers. We've had extremely positive client engagement and some impressive data points around improving ABVs and repeat metrics. This solution is extremely high touch, where Audley effectively becomes the trusted partner for all the travel needs of a customer. As an example, one family joined last December and has three and now has three booked trips through the next 12 months, and a schedule of bucket list destinations that they want to visit over the coming years. In total, 12 trips through to 2029. Cruise.
Audley often includes some element of cruise into larger itineraries. For example, expedition cruise in the Antarctic or regional cruise like the Galapagos. However, premium cruise is a very significant market, where we currently under index. As such, we have identified the opportunity to go after this market more systematically and include high-end river and ocean cruise within our tailor-made itineraries. We have made several hires to help drive this initiative over the next twelve months. We don't have a separate slide on this point, but there is also a clear buy and build thesis around Audley. Following the significant investment in technology and processes over the last five years, Audley is perfectly positioned as a platform to consolidate the market. We have an active pipeline and have looked at several opportunities in the past.
Our focus will be on retaining the purity of the model around premium tailor-made travel, but using acquisitions to diversify product and customer base. Okay, so I touched on the resilience of the business model earlier: asset-light, diverse product set, and affluent customer base. These all ensure Audley has exceptional financial metrics. Furthermore, clients typically place a 20% deposit with Audley at the point of booking, and with final balances paid 85 days before departure. Given we do not take any advance commitments, ground suppliers are typically paid after clients return from their trip, ensuring an attractive negative working capital profile.
The typical lag between booking and departure is around seven to eight months, ensuring we have excellent forward visibility, with over 50% of revenue covered by the order book at the start of the year and over 80% by the end of Q1. Audley has been an outstanding success story, and management have delivered impressive long-term growth despite the challenges from COVID, which, as I noted earlier, was an existential threat for the whole travel industry. I am incredibly proud of the support, both financial and manpower, that 3i provided, ensuring Audley was better placed than its competitors coming out of COVID. Our recent investment also positions Audley well to continue this market outperformance and rapid growth over the coming years, and we are forecasting north of 50 million of EBITDA for 2025.
Finally, just to finish, it isn't just the financial performance that makes us proud of everything Audley has achieved, but also the broader recognition the business has received, be that employee feedback with market-leading employee NPS scores or several high-profile market and customer awards noted on this slide. We've also successfully achieved B Corp status last year, one of a handful of travel companies to achieve this, and are recognized at the forefront of sustainability in travel. Okay, with that, I'm happy to take any questions.
Thank you. To ask a question via the conference call, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. As a reminder, participants can also submit questions through the webcast page by using Ask a Question button. Thank you. We are now going to proceed with our first question, and the question's come from the line of Manjari Dhar from RBC. Your line is opened.
Hi. Morning. Thank you for taking my question. Just one for me, please. Looks like you've held Audley for a number of years now. Appreciate the disruption that COVID caused, but I was just wondering, have there been sort of times in the past where you have considered an exit from this investment? And I guess if there have, what were the considerations that made you decide against it? Thank you.
Thanks, thanks, Manjari. Maybe I'll take that. Well, as you can see from the history of this, we've probably owned it for about nine years, and the time that we would have normally considered an exit was right in the middle of the pandemic, so it didn't occur at that point. But it's reasonable to understand that we will probably give that more consideration in the coming 12 months, given the very strong recovery post the pandemic. So it will be something that we'll now be more focused on.
Thank you.
Thank you. We are now going to proceed with our next question. The question's come from the line of Andrew Lowe from Citi. Please ask your question.
Hi, guys. Thanks for the presentation and taking the questions. I've got a few, probably more for Simon. There's been quite a lot of talk about demographics. So, for example, David mentioned, you know, benefiting from the silver economy in the presentation that we've just had. Simon, what do you think are the most interesting demographic trends that you want to position the 3i portfolio for? And I'd be curious to know how you think that current position may vary from what you may have thought five to ten years ago. And then just on the internationalization being a key strength of 3i Group, just what you think makes you more successful than your peers on this basis? And then a final quick clarification.
You mentioned negative working capital for Audley, and it's obviously a key feature for Action, so I'm just curious how much of your investment portfolio are businesses that run with negative working capital? Thanks.
Okay. Yeah, thanks for that. I mean, demographics is always an important focus as part of any investment consideration. We do see certain themes that are brought about as a result of demographics or changes in populations which form the backdrop, probably across all four sectors that we hunt in, one way or another, and this bifurcation between premium and value is also a very big part of that consideration, plays into that as well, so it is something that we obviously look at. We're very much a thematic investor across the four sectors, and demography is one of the things that we give good consideration to.
Internationalization is another, and, you know, 3i, my predecessors had tremendous foresight in this regard, so they were opening international offices in the nineteen eighties before most private equity firms had even been thought of. And so we are very embedded in both continental European and North American markets. We've been there a long time. We have very strong networks, and we have particularly strong networks with the founders of businesses, not just the intermediaries that operate in those markets. And I think for us, that is a, that is a huge advantage. I said right at the beginning of joining 3i, that one of 3i's strengths was the origination of interesting transactions, and that remains as true today as it did, when I first joined the group.
Negative working capital, another key criteria for investing for us is that a business has to have an attractive cash flow profile. Now, not all businesses have negative working capital, but we do like to see cash flows very much in line with the development of the profitability of the business, at least. So, that is a key criteria against which the teams and the investment committee will judge new investments, and hence, the particular approach around picks and shovels in the fairly pretty highly priced software sector.
Thanks. That's really helpful.
Thank you. As a reminder, to ask a question via the conference call, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. As a reminder, participants can also submit questions through the webcast page by using the Ask a Question button. Thank you. I'm showing again no further questions. I will now hand back to Silvia Santoro, 3i's Group Investor Relations Director, to address the written questions submitted via the webcast page.
We have a question from Nick Johnson from Deutsche Numis. What are the operating leverage dynamics in Audley Travel, from a gross margin and net margin point of view? Does the high touch model restrict scope for operating leverage? It looks like EBITDA margin has reduced, from 10% in 2015 to 8% in 2024.
Thank you, Nick. So on the operating leverage point, for me, there are two key drivers that firstly, the maturity of the CS cohort, the country specialist cohort. As they mature, they can often shift from doing 3-4 bookings a month to doing up to 14, 15, and in some cases, even up to 30 bookings a month. The second point is around technology, and I referenced some use cases around GenAI and other AI applications. We are well advanced with exploring using AI to help build the itineraries upfront, and we believe that would have significant impact on the productivity of the country specialists.
On your final point of the overall EBITDA margins, yes, it has come down marginally since pre-COVID, but we see that materially coming back and growing into healthy double digits as we look forward.
We have another question from Greg Knox, from Deutsche Numis. Can you talk more about the evolution of the average spend per holiday over time, and is there an upper limit to this?
Thank you, Greg. Another good question. So on the ABV side of things, we have seen pretty consistent average booking value growth over the last three to four years. That is made up of a few elements. Firstly, underlying inflation, which has clearly been running at a very high level. Secondly, the booking margin that we are placing on that, which has remained fairly consistent. And the third point is around the complexity and length of holidays being taken by our customer base. We're constantly trying to upsell and increase the complexity of our trips. We have forecasts going forward that that will level off as inflation steadies over the coming years.
Thanks, David. I'm showing no further questions through the webcast page.
Can we just see if there are any other general questions, anything away from Audley or the investments, just before we close the call?
We have no questions showing on the conference call.
Anything for you, Silvia? No.
No.
Okay, well, thank you to David for the presentation on Audley, and Marc and Rémi on the software and services investments, and thank you for joining today. Have a good day.