Background and challenge
A private equity client was considering an investment in a leading computer/server firmware vendor and required an objective perspective on the merits of pursuing the transaction. The client needed insights into the target’s competitive position in the ecosystem and market, overall size and growth of the market, and the target’s outlook.
The private equity firm enlisted L.E.K. Consulting to conduct a detailed internal and external analysis and develop an objective buy-side diligence to inform the firm’s decision about whether to pursue the transaction.
Approach and recommendations
During the client engagement process, we performed the following tasks:
- Created a market size assessment of the target’s core products
- Used a combination of primary and secondary research in order to estimate the market sizes across each of the major geographies for data center infrastructure deployments
- Determined projected growth rates in server firmware spending (source and run-time code)
- Compared market growth estimates, competitor share positions, customer future spending trends and vendor preferences to validate target company revenue forecasts and understand implied market share changes
In parallel with above tasks, we:
- Conducted a comprehensive primary research campaign that focused on speaking with OEMs, hyperscale data center operators, white box manufacturers/ODMs and competitors in order to better understand the evolving market dynamics
- Used customer interviews in order to better define the firmware vendor’s value proposition and its perception in the market. Interviews with competitors helped define how the target’s strategy differed from other vendors and verified that its leading position would remain secure
- Served as a technical subject matter expert for the private equity client throughout the engagement
By leveraging our firmware expertise, we educated the private equity client on complex technologies and answered one-off questions as they arose over the course of the diligence. As a result, we acted as a partner throughout the diligence and became a trusted advisor.
With L.E.K.’s help, the private equity client was able to make the decision to make an investment in the target.