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Private Equity

That new CARR smell

With politics and the pandemic hurtling towards a crescendo this week, I thought it would be a welcome distraction to talk about something equally as controversial… Contracted Annual Recurring Revenue (CARR). (The comparison is mostly a dark joke, so spare me any indignation.) We started seeing CARR enter the startup lingo about five years ago, but typically only … Continue reading That new CARR smell

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With politics and the pandemic hurtling towards a crescendo this week, I thought it would be a welcome distraction to talk about something equally as controversial… Contracted Annual Recurring Revenue (CARR). (The comparison is mostly a dark joke, so spare me any indignation.)

We started seeing CARR enter the startup lingo about five years ago, but typically only inside of enterprise software startups in their tracking of implemented revenue versus signed revenue. Then CARR started appearing in investor decks, then companies wanted to be valued as a multiple of it instead of ARR, then companies started talking about “verbal” Contracted Annual Recurring Revenue (VCARR). Oh boy.

Here is how we think about ARR and CARR and how they relate to each other:

Your current GAAP (recognized) monthly revenue x 12, excluding any transactional revenue

= ARR (very conservative)

+ transactional revenue that is highly certain to recur (example would be “metered” subscription models like say charging $1 per truck load in shipping)

= ARR (nominal)

+ additions to ARR expected in the next 6-12 months (or maybe before end of calendar year) that represent increases baked into contracts that are already implemented. This could include highly likely increases to recurring transactional revenue for certain models

= ARR (liberal)

+ “ARR” that is contracted but not yet implemented or billing, representing what will be billing immediately after it is implemented

= CARR (nominal)

+ increases to CARR that represent contracted annual price increases over time in contracts not yet implemented, including future “recurring transactional” revenue

= CARR (liberal)

+ contracts you think you have a verbal on

= VCARR (bullshit) = bullshit

We generally prefer the use of ARR (nominal) and CARR (nominal) both in working with our companies and in evaluating new investment opportunities. We prefer these versions because their constituent parts are more transparent and objective. The difference between them is also very clear. ARR is monthly revenue today x 12, and CARR is monthly revenue if we finished all implementations today and multiplied by 12. We loathe VCARR.

But don’t you want to take credit with your BoD or an acquirer/funder for everything you have signed? Of course, but if there are too many assumptions in the underlying structure of a metric, its veracity collapses, potentially requiring backtracking, reforecasting or undermining your story with a BoD or acquirer/funder. Using nominal definitions, it is okay to say our ARR is X today, but in six months, we already have Y baked in, representing contracted increases. Similarly, many companies will talk about TCV, which includes the value of multi-year contracts.

These days, we are seeing most companies valued by some multiple of ARR (nominal) or expected year end ARR (nominal). If the former, credit is usually given also for unimplemented contracts (CARR – ARR). If the company is later stage with a long history of successfully implementing contracts, there may be no discount on the multiplier used for the unimplemented contracts. For an early stage company say with $1M in ARR and $1M in unimplemented contracts (CARR = $2M), the discount on the unimplemented multiplier might be as high as 50%, given more uncertainty about implementation success.

What matters the most is that whatever metric you choose, it is clearly defined, transparent and able to be objectively measured. Otherwise your new CARR will smell fishy.

Source: https://vcwithme.co/2020/10/28/that-new-carr-smell/

Private Equity

Abris buys Polish healthcare firm Scanmed

Firm operates hospitals, clinics and medical centres across Poland

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Warsaw-based private equity firm Abris Capital Partners has bought the entire shareholding in Scanmed, a Polish healthcare network operator, for 340m Polish zloty (€76m).

The purchase, made by the Abris CEE Mid-Market III LP fund, is for 100% of the shares in Scanmed from the seller Life Healthcare Group Holdings.

Scanmed operates in 42 locations across Poland, providing primary healthcare and specialist consultations, advanced diagnostics and hospital treatment.

In a statement Abris said it planned “to support Scanmed in the extension of its service offering and geographical coverage, as well as in the continued improvement of its medical facilities and care in key therapeutic areas”.

Scanmed also plans to increase commercial revenues in orthopaedics, ophthalmology, rehabilitation and urogynecology, and to open new labs and surgery units.

Abris’ previous investments in the healthcare sector include ITP S.A., a Polish vendor of aesthetic medicine products, and Dentotal Protect, a distributor of dental consumables, instruments and equipment in Romania.

The transaction is subject to regulatory approvals and is expected to close in the first quarter of 2021.

To contact the author of this story with feedback or news, email Mark Latham

Source: https://www.penews.com/articles/abris-buys-polish-healthcare-firm-scanmed-20201126

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Private Equity

SK Capital brings in another chemicals veteran as senior director

SK Capital Partners has boosted its team by bringing in veteran chemicals industry expert George Gregory as a senior director.

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SK Capital Partners has boosted its team by bringing in veteran chemicals industry expert George Gregory as a senior dir

Source: https://www.altassets.net/private-equity-news/by-news-type/people-news/sk-capital-brings-in-another-chemicals-veteran-as-senior-director.html

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Private Equity

CITIC Capital said to team with China Mobile Communications for $1.8bn AsiaInfo Technologies buyout

Chinese private equity house CITIC Capital is reportedly eyeing a $1.8bn buyout of telecoms business AsiaInfo Technologies.

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Chinese private equity house CITIC Capital is reportedly eyeing a $1.8bn buyout of telecoms business AsiaInfo Technologi

Source: https://www.altassets.net/private-equity-news/by-news-type/deal-news/citic-capital-said-to-team-with-china-mobile-communications-for-1-8bn-asiainfo-technologies-buyout.html

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