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Pre-deal value creation: cost reduction, tech-enabled service operations

B2B services

£14.8m cost reduction and 18% EBITDA uplift

Portfolio strategy

The fund’s portfolio strategy focused on building market share through acquisition, in a market dominated by a handful of large businesses and a long tail of smaller operators. As most companies in the market used proprietary service technology for their core operations, the investment thesis was based on operating the acquired companies as separate business, with some cost synergies achieved across back-office operations.


Portfolio company

The foundation business of the portfolio strategy was a UK company procuring energy for large manufacturing companies and large retailers operating across multiple locations. A specialist in supplier switching, energy trading, supply verification and ESG reporting, the business had developed proprietary technology to achieve a good level technology-enablement in its service delivery.


Target company

The target company offered the same services to the same markets, with almost no overlap in customer base. It too had developed proprietary technology to deliver its core services. However compared to the portfolio company, the target was operating with a much higher ratio of staff to revenue.


Value creation

During our operations and technology due diligence of the target we determined that the technology was fit purpose and could support the projected revenue growth of the investment thesis. Our analysis of the operational processes and architecture of the proprietary technology showed that the high staff requirements was a systemic problem of the technology – whilst the technology could support growth, that growth would come at the unavoidable cost of increased FTEs. We also identified that the foundation programming languages were so old that future development would be slow, expensive and high risk.


Based on this analysis, we calculated the ROI of transferring all of the target’s operations over to the acquiring company and retiring the target’s technology in its entirety. To achieve an accurate view of costs, revenue accrual and revenue risk, we designed a process for moving critical service-delivery processes on a customer-by-customer basis, triggered by the influx of service data. For the back-office operations, we explored system integration options but ultimately determined that a complete transfer to the acquirer’s existing systems would provide a better uplift in EBITDA.


Pre-deal, we delivered the operations and technology due diligence with a detailed, fully-costed implementation plan with phases of delivery, dependencies and timings, KPIs and measures of success, and governance structures. We articulated the necessary in-house roles, contractors and external service providers, and provided a risk register and mitigation options.

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