Use case - H - D'Ornano + Co

Objective

New Investment

Investment stage

Buyout

New Business model

Case Study

D’ORNANO + CO. PERFORMED HYBRID GROWTH DILIGENCE ON A FRENCH FINTECH SOFTWARE COMPANY IN THE CONTEXT OF A BUYOUT OPERATION

The investor wanted to complete a Buyout of a company that develops a financial technology platform for electronic trading and investment management. The company recently moved into hyper-growth mode as its automated trading solutions and algorithmic technology gained traction thanks to new and expanding asset trading, including crypto currencies. Yet, it remained vulnerable to the volatility of its clients’ trading businesses as well as the broader liquidity and commodity markets. Still, with equity and commodity investors and traders pushing for new and innovative ways to find returns, the company seemed well-positioned to seize a growing opportunity to serve partners trying to stay ahead of rapidly evolving trading and investing systems.

Challenge

The company has a strong reputation of serving a wide variety of markets and trading partners. Its long history and complex revenue model included services for both hosted products as well as managed on-premise software. In addition, the company rapidly produces new modules and features to respond to the evolving needs and opportunities for clients. 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 validated the resilience of the target’s business model by testing:

The robustness of its historical growth trajectory, through understanding various revenue streams, including the different ARR layers;
Rationale and dependence on set-up and integration, which can be significant in FinTech and affect margins;
The balance of its R&D spending, which can be consequent for software firms where innovation must constantly be pushed and compliant with changing regulations.

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 challenging the sell-side adjusted EBITDA aggregate (i.e. “QOE” analysis), on which valuation was based, together with performing an enterprise-to equity valuation bridge with a dual financial and legal perspective.

New Business Model

+ Vertical

Software [Applications] companies develop computer programs to perform specific functions. These companies use the SaaS delivery mode partially. Companies exclusively using the SaaS delivery mode are classified within SaaS [Applications] per our framework. D’Ornano + Co. has historically conducted multiple Software [Applications] assignments for global investors.

FinTech companies use internet, software technologies, and algorithms to offer or facilitate financial services traditional offered by banks. These services include software that automates financial processes, as per Pitchbook. D’Ornano + Co. has historically conducted multiple assignments for global investors in the FinTech space.