Use case - A - D'Ornano + Co

Objective

New Investment

Investment stage

Buyout

New Business model

IT Services

Case Study

D’ORNANO + CO. PERFORMED HYBRID GROWTH DILIGENCE IN THE CONTEXT OF A BUYOUT OPERATION CONDUCTED ON A LEADING FRENCH CYBERSECURITY PLAYER

he Private Equity investor wanted to acquire a majority stake in a cybersecurity company that had recently moved into hyper-growth mode thanks to the introduction of a security SaaS platform. The company wanted to raise money to expand beyond its home market and become a major European player. Cybersecurity is a robust market presenting big opportunities for investors who can successfully identify the right companies that are addressing the expanding cyber-threat landscape.

Challenge

The company’s value proposition long included services for consulting, audit, integration, and managed services. While it now offered a SaaS platform, its solution also involved hands-on customization for clients that creates a challenging scenario for measuring unit economics and profitability. In addition, it targets customer segments that handle sensitive data and face tough regulatory requirements, including finance, health and public administration. Traditional due diligence is backward-looking and, for High-growth and Disruptive companies, does not provide comfort on a company’s ability to deliver sustainable growth and create value. Also, because traditional due diligence takes a broader industry approach rather than a more precise business model approach, it can only generate a surface-level view of a company’s financial health with a limited picture of an asset’s strengths and weaknesses to consider in the investment process.

Solution

D’Ornano + Co. applied its Hybrid Growth Diligence for Buyout product which identifies in a short timeframe any deal-breaking items, secures key aggregates, and challenge the target’s ability to deliver a sustainable and predictable cash-flow, on top of providing in-depth analysis to satisfy the expectations of a Private Equity client assessing a mature asset. Going beyond classic due diligence, the firm’s HGD methodology layers Financial, Legal and ESG diligence on top of preliminary business model analysis and incorporates operational data mirroring the company’s economics in the assessment performed. The result is a swift and in-depth analysis performed to satisfy the expectations of an investor assessing a high-growth + disruptive asset in the context of a buyout.

Mission outcome & key client impact

By using the Hybrid Growth Diligence approach, we challenged intrinsic value drivers and the resilience of the target’s business model by testing:

Its historical ability to maintain a stable and high contribution margin on its consultancy activity, that may be affected by pricing power and staff activity rates;
The existence of a clear scalability of its SaaS platform, in understanding the license gross margin dynamics, affected by security analyst and operator costs that remain critical to run the solution;
The capacity to generate a positive EBITDA on the long term, with a limited dependency towards continuous R&D, needed to tailor the solution to the ever-changing cyber-threat environment.

This analysis confirmed the target’s ability to deliver sustainable and predictable cash-flow, which in turn helped our client confirm its investment thesis. The D’Ornano + Co. team further helped the client refine the target’s valuation by performing an adjusted EBITDA analysis (“QOE”), aggregate on which valuation was based.

New Business Model

+ Vertical

IT Services companies provide business and technical expertise to organizations for them to apply technology to support and improve their business operations. D’Ornano + Co. has historically conducted multiple IT Services assignments for global investors.

Cybersecurity companies provide information technology solutions oriented toward user and network security*. D’Ornano + Co. has historically conducted multiple Cybersecurity assignments across multiple business models.