In the public consciousness, Silicon Valley is mainly associated with the cut and thrust of the start-up scene. But it’s also home to many mid-sized technology companies with strong track records, proven cashflows and big potential for growth – perfect for private equity investment.
One of these is GlobalLogic, which won the Editors’ Award in the Americas for its impressive growth strategy. Founded in San Jose in 2000, the firm helps business customers design, build and deliver digital products. It was already a well-established name with an international presence when Apax Partners came along in December 2013 with a plan to take its growth to the next level.
Apax saw the huge long-term potential for the outsourced product development industry, having made a number of successful IT services investments in recent years. It also saw that GlobalLogic’s delivery capabilities, strong customer base and good management team made it the right horse to back in a fragmented market.
Together with the firm’s management, Apax developed a strategy focused on five areas of growth: investing in new capabilities; geographic expansion; operational improvements; targeted management upgrades; and accretive M&A.
In practice, this meant investing heavily in sales and marketing, broadening the firm’s offering in sectors such as healthcare and telecoms, and expanding into retail and automotive production. This broadened, increasingly creative product offering was driven by a business development operation focused specifically on Fortune 500 companies that aspired to achieve disruption through digital transformation.
The board was revamped with hires including a new CFO, chief marketing officer and chief delivery officer. GlobalLogic also strengthened its non-executive board by appointing Sir Peter Bonfield, former chief executive of BT, as chairman.
Unusually, perhaps, for a PE-backed firm, GlobalLogic’s EBITDA margins decreased by 250 basis points in the first year after Apax doubled down on investing for growth. Since then the business has grown substantially, increasing EBITDA by nearly 3x and margins by more than 300bps. Between entry in 2013 and exit in May 2018 headcount doubled to 12,000, driven by the establishment of new engineering centres in Norway, Poland, Slovakia and India, and the upsizing of its customer sales and delivery functions in North America.
As a result, GlobalLogic’s market share has increased from 3-4 percent to 5-6 percent.
The investment was exited in two stages. In April 2017, its funds sold a 48 percent stake to Canada Pension Plan Investment Board. In May 2018, it announced the sale of its remaining interest to Partners Group. On completion of this transaction, the investment in GlobalLogic will result in a gross multiple of around 5.4x and an internal rate of rate of more than 50 percent – not too shabby at all.
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