Firms with 60% of digital workload are a small fraction of PE deals
Only 20% of all investments made in Tech Services assets were in truly digital assets, according to a study, adding that the rest were packaged as “Digital Asset Masquerade Conundrum”, and was short-changing PE investors.
The high-octane growth in Tech Services assets has been fuelled by the pandemic-induced digital transformation of enterprises, leading to the increased investor interest in the space – not just in India but globally as well, according to the study, ‘Convergence of Tech Services through a Digital Lens’, by Zinnov.
However, to capitalize on this trend, services companies have been masquerading every other asset as a Digital Services asset, to ride the high valuation wave.
The Digital Asset Masquerade Conundrum was one of the most revelatory findings of Zinnov’s analysis.
A deeper analysis of this ‘digital asset masquerade conundrum’ by Zinnov was revealed from 670+ PE investment transactions including buyouts, growth capital and add-on acquisitions in the Technology Services space for the year 2021.
The study focused on the PE Investments landscape, highlighting the key trends driving the growth of the Technology Services ecosystem and the underlying phenomenon that have the potential to shape the growth and return on investments for both investors and providers in this space.
Each deal has been evaluated and analyzed extensively across 20+ parameters to understand the high flow of investments in the space.
On the buyer side, some of these parameters include details of the PE investors, deal types and sizes, valuations and multiples.
On the asset side, the analysis points include quantitative parameters such as revenue, EBITDA, growth, headcount, among others and qualitative parameters such as delivery regions, type and quality of service offerings, and the rationale behind the investment.
The implication is that truly Digital Services firms, where at least 60% of the workloads are digital, are only a small fraction of the target assets involved in the PE deals, said the report.
Vimal Menon, Partner, Zinnov, said, “Our expansive expertise in the Digital Services space and our role as commercial advisors for various PE-led deals, make us firmly believe that to create real value, Private Equity players need to identify truly digital assets.”
Founded in 2002, Zinnov is a leading global management and strategy consulting firm, with presence in New York, Santa Clara, Houston, Bangalore, Gurgaon, Paris and Pune. fiinews.com
