On May 22, 2018, Apax Partners announced that the PE firm is selling its remaining stake in Global Logic to Partners Group. According to a report published by the Economic Times, the company is valued at over c.$2bn.
About Global Logic:
Headquartered in San Jose, CA, Global Logic is one of the largest outsourced product development players in the IT services space. The company has been one of the pioneers in the product engineering space, catering to a number of ISV clients such as HP, Samsung, Qualcomm, Adobe, Ericsson and Adobe. It also caters to retail, media & communication, healthcare and automotive industries. Over the last few years, the company has become a leader in the digital platform engineering space. The company reportedly does over $500m in revenues with over 12,000 employees globally.
Valuation:
Terms of the transaction were not disclosed, but news reports have pegged the valuation at over $2bn, which is roughly 4x revenues. This is in par with the valuations of the likes of EPAM Systems and Globant, which are currently trading at 3.9x and 4.0x LTM revenues, respectively (and 26.8x and 29.5x LTM EBITDA, respectively). The valuation is also more than double Persistent Systems (1.8x LTM revenues) – the other major player in OPD space.
Global Logic has changed hands among multiple investors over the years. The company received its initial rounds of investment from Westbridge Capital, Sequoia Capital and NEA – in Feb 2008, these investors put $29.5m in a Series C investment. In Apr 2010, Goldman Sachs Assets Management invested an undisclosed amount. Apax Partners acquired 96% of the company in Oct 2013, reportedly at a valuation of $420m, providing an exit to previous investors. Last year in Jan 2017, Apax sold 48% of Global Logic to Canada Pension Plan Investment Board for a valuation of c.$1.5bn. With the Partners transaction being valued at $2bn, Apax’s IRR is a little over 40%.
Key drivers of the transaction:
A large driver of the valuation is the growth and profitability of Global Logic. According to the press release, the company has doubled in revenue and EBITDA since Apax’s investment in 2013 – at a CAGR of over 20% y-o-y, which is significantly above the IT industry growth rate of 8-10%. More importantly, most of its growth has been organic. The company did one acquisition during the period in Poland in the embedded software space – REC Global.
The primary driver for growth has been the move to digital platform engineering services from the traditional OPD model. The design studio approach – wherein the company works with its clients onsite to provide digital transformation solutions – has been one of the pillars of Global Logic’s strategy. These design studios are spread across client locations but are agnostic to industry verticals. The primary purpose is to solve engineering problems from technology / horizontal perspective, thereby cross-leveraging engineering talent across the organization. Other companies such Accenture and Globant have also implemented this strategy very successfully.
The transaction underlies the fundamental fact that, in the end of the day, valuations in the IT space are driven by growth and profitability, and not specific technology or vertical expertise. In this changing business environment, companies which have restructured their organization to maintain consistent revenue and profitability growth have created the most shareholder value.
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