Deal focus: Partners Group-backed IT play ripens early

Once in a while, an investment becomes more than a financial exercise and changes the way a private equity firm does business, even after the exit.

This is set to be the case with US-based GlobalLogic, an IT services provider that focuses on supporting corporate digital transformations. Partners Group is exiting its 45% stake in the company to Japan's Hitachi, generating a roughly 5x return.

But in this case, Partners Group isn't just the sponsor; it's a client, and it will remain so after the sale closes in July. Indeed, one of the firm's key value creation initiatives with GlobalLogic was the buildout of a private equity services unit. The idea is that GPs increasingly recognize portfolio-level technology upgrades as essential to successful exits, and they're willing to pay for it. Insights from IT partners in this area can also be invaluable in assessing potential investments.

"Having this relationship with GlobalLogic has taught us to be a better investor at the end of the day," says Todd Miller, a managing director at Partners Group. "The ability to use software from an offensive standpoint – to advance a company's relationship with the customer – we're seeing that everywhere now. It's a major topic in our investment committee every time we go through an underwriting process. It's a differentiator in the marketplace of almost any sector."

Partners Group acquired a 48% position in GlobalLogic 2018 for about $750 million a year after Canada Pension Plan Investment Board (CPPIB) bought 48% for $720 million. The two investors now hold 45% each and are both selling to Hitachi at an equity valuation of $8.5 billion. The total acquisition cost, including debt, is expected to be $9.6 billion, representing a 37.4x forward EBITDA multiple. Adjusted EBITDA increased from $145.6 million in 2019 to $179.5 million in 2020.

Most of the growth has been organic. In addition to the PE-focused sales unit, Partners Group has helped GlobalLogic establish new environmental, social, and governance protocols (a key priority for Hitachi), while also increasing the sophistication of client account management to include multi-level relationship mapping. This was achieved in part by expanding the staff from 12,000 employees and 26 engineering centers in 2018 to 20,000 staff across 30 engineering centers today.

There were also four acquisitions that helped solidify operations in the US, UK, and continental Europe. Perhaps most importantly, the bolt-ons snapped an M&A drought for GlobaLogic, rebuilding its capacities in terms of integrating new business lines and securing IT skills. "Talent is the name of the game in this industry," Miller says. "The value proposition in many ways is the ability to find, attract, retain, and develop software engineers – and M&A is a good way to do that."

Still, the ultimate growth driver has been the general momentum around corporate digitalization, especially in the era of COVID-19. Despite having expectations to hold the company for much longer, Partners Group knew the time was right to maximize value and had significantly advanced an IPO process to this end.

Meanwhile, Hitachi was progressing an ambitious data-based transformation of its own. The conglomerate's Lumada innovation program had made several acquisitions in next-generation tech, and the portfolio needed global engineering support. With GlobalLogic on the cusp of going public, Hitachi knew it was now or never and made its approach.

"It's a little bittersweet," Miller says. "We are very fond of this company, and we think it's doing great things out there. We intended to be very long-term investors in this business and were making decisions with that long-term lens. I think Hitachi sensed that stewardship as it was looking for a global platform."

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• Topics
• North Asia
• North America
• Exits
• Trade sale
• Technology
• USA
• Japan
• Partners Group
• CPPIB
• enterprise software