Evaluating digital solutions offering of a target acquisition

Our Client’s Opportunity
One of the difficulties faced by private equity is understanding the strengths of a technology solution relative to its peers in the market, as well as its ability to monetize this offering. This potential target boasted one of the few cloud-native solutions, strong AI/ML functionality, and a suite of modules including marketing, sales, catalog management, billing, order management, that positioned it for market share gains over the long term.

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Our Brief
Our client’s needs were clear: they wanted to verify the capabilities of the target's offerings, obtain details of its architecture and solutions, confirm its clients and revenues, and evaluate its strategy and roadmap.
 

Key questions from our client we set out to answer included:

• What is the latest version of the product and its modules? 

• What are the main differences between the previous versions?

• Is the solution truly cloud native and is it cloud agnostic?

• What B2B and B2C Lines of Businesses are supported?

• Are there any AI components and what use cases are supported?

• Find out the latest projects that have failed or faced significant challenges and the main reasons? Have there been any decomissions?

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Our Approach
Depth of research is one of our founding principles at 4D, and our client would not have benefitted simply from speaking to expert research networks for their opinion on the solution, nor reading promotional materials on the target’s website. Our client needed confirmation of capabilities and business from verifiable sources familiar with the technology and company itself.

As a result we spoke to two product managers and two solutions architects that had previously worked with the company. On these calls, the interviewees walked us through architecture maps and describing to us who the target’s customers were, its offerings, revenues, and operations.
 

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Client Outcomes

Our due diligence into the target company yielded critical information for our client to decide on whether they should do the acquisition.

We verified that the solution offered by the target company was indeed a true cloud native digital solution with a microservices-based architecture to offer digital solutions, presenting a strong proposition to their customers. The solution supported almost all public clouds, which is rare for a mature vendor in this space, including Oracle, GCP, Azure, and AWS.

Its solution also included  order management, product catalog, CRM, eCommerce, and billing, supporting all major B2B and B2C LoBs. The solution also had more advanced level of AI/ML functionality including AI customer assistance, lead generation, opportunity creation, and customer care which most vendors in this space solve through big data solutions rather than true AI.

As such, our client realized that this company’s offering compared favorably within the landscape with unique properties that could win the market in the future.
 

We also confirmed that the solution had been sold to over 20 telco customers, including 4 Tier 1 CSPs, validating the case that this solution could win pitches against larger competitors based on its unique proposition, variety and depth of use cases, and competitive pricing. 
 

However, we uncovered that the company’s financial management practices have created critical commercial challenges that have led to financial underperformance and customer losses. Our interviewees revealed that the target consistently over-quoted on projects, allocating only about 90% of the necessary staff required for successful implementations. This approach is aimed at maximizing profitability but often results in projects competing for limited resources, leading to client dissatisfaction and project cancellations.

 

Additionally, we learned that several failed implementations occurred due to the quality of deployments, lack of local project management, delays in deliverables, and misalignment between the sales and delivery teams. This resulted in a failure to personalize or customize the final project/product, with our sources listing the names and details of three canceled contracts, one aborted implementation, and a Tier 1 customer which is now in a critical state. All of these issues stemmed from the lack of resource and improper resource management which presented a serious case for concern for our client.

 

The client was impressed by the potential of the target company’s technology however was taken aback by the poor financial management of the company and poor resourcing. Our client realized that making the product successful in the market would require a serious change in commercial management, and a high investment in additional trained staff to restore the product and gain much needed references. As such, they avoided a potentially hazardous investment that would have required more capital and focus than they were willing to invest.

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