Hitachi's plan to acquire GlobalLogic from private equity firm Partners Group for $9.6 billion represents a timely case study in how private equity firms can empower and expand IT services businesses and outsourced software developers.
First, some big-picture background: The world of private equity is often celebrated or villainized -- depending on the media lens from which you look. But we realize the PE market isn't "all good" or "all bad." Many private equity deals work out quite well for all parties involved. Others, in some cases, turn bad for employees and customers who suffer from cost cuts and other measures designed to boost profit margins.
In the case of GlobalLogic and Partners Group, the outcome generally appears impressive for both parties.
How Private Equity Expanded GlobalLogic
Indeed, Partners Group acquired in 2018 in a deal valued at $2 billion.
At the time of the May 2018 deal, GlobalLogic had $500 million in annual revenue and an organic growth rate of more than 20 percent per year.
Fast forward to 2021. GlobalLogic's revenues are expected to reach $1.2 billion, with adjusted EBITDA margins to be over 20%, the company says.
The big question: How did GlobalLogic revenue grow from $500 million in 2018 to $1.2 billion 2021 -- without destroying EBITDA margins along the way? A March 2021 Partners Group press release offers some clues.
Indeed, Partners Group helped GlobalLogic to focus on the following business priorities from 2018 through 2021, according to the Partners Group press release:
- Increasing the size of the GlobalLogic's top accounts;
- introducing a more targeted sales strategy in certain customer segments, including the development of a private equity-focused sales channel.
- Hiring more than 7,000 additional software designers, engineers, and data experts s
- Acquiring and tucking four businesses into GlobalLogic -- including three in Europe,.
- Enhancing the company's focus on environmental, social and governance (ESG) initiatives.
GlobalLogic: Current Valuation, Unknown Variables
Now, GlobalLogic's ownership is transitioning from Partners Group to Hitachi in a deal valued at $9.6 billion -- more than four times the valuation of GlobalLogic in 2018.
Admittedly, ChannelE2E does not know such variables as:
- How much of GlobalLogic's valuation growth involves organic growth vs. M&A tuck-in growth.
- The state of GlobalLogic's corporate culture before and during Partners Group ownership. At one point, GlobalLogic in 2018 did have some targeted layoffs.
- The state of GlobalLogic's customer satisfaction before and during Partners Group ownership.
We don't have any indicators that GlobalLogic's culture and customer satisfaction declined amid private equity ownership, but those variables are often overlooked by the financial media -- which often obsesses on dollars-and-cents outcomes without diving into the "people" outcomes.
Partners Group Sells GlobalLogic to Hitachi: Executive Statements
In a prepared statement about the state of GlobalLogic, Partners Group Co-Founder and Board Member Marcel Erni said:
"GlobalLogic is serving clients on the front line of the digital transition, helping them reimagine their offering, adapt their business models and change how they engage with consumers. Digitization is one of the three investment giga themes that Partners Group is focused on that is driving change across industries worldwide. GlobalLogic is an exciting success story demonstrating how Partners Group delivers sustainable returns to our clients through transformational investing. It has been a pleasure to work in partnership with CPP Investments and GlobalLogic's management team to support the Company's rapid growth and cement its position as a market leader."
Added GlobalLogic CEO Shashank Samant:
"During the course of our partnership with Partners Group and CPP Investments, GlobalLogic experienced strong growth in our core markets and has secured footholds in new geographies. The global platform and operational expertise of Partners Group and CPP Investments have been highly valued resources. The teams' experience building out fast-growing technology businesses and international footprint have been critical in developing and executing on our expansion plans. We are grateful to Partners Group and CPP Investments for their years of hard work and partnership and feel well-positioned to continue growing as part of the Hitachi family."
Concluded Todd J. Miller, senior member of management, private equity, Partners Group:
"We have built a strong foundation for GlobalLogic to enter its next phase of growth and believe it is the ideal time to exit the business on behalf of our clients. We are confident that Hitachi is the right institutional partner for all stakeholders to advance the Company given its focus on social innovation, modernizing infrastructure and digital transformation. GlobalLogic provided us with an opportunity to build value in a business benefiting from transformative market trends, but also to create positive stakeholder impact by helping businesses adapt to new ways of operating in today's economy, both supporting growth and securing jobs during COVID-19. We look forward to seeing the business and its employees continue on this upward trajectory going forward."
The Hitachi-GlobalLogic deal is expected to close before the end of July 2021 and is subject to customary conditions and regulatory approvals, Hitachi says.
