Using acquisitions to unlock 'digital transformations' - the COVID impact

By Jess Burgess, Investment Team

Technology has undoubtedly been at the forefront in enabling us, as a society, to continue working and socialising despite the COVID19 pandemic. We have also recognised how the lockdowns have altered our expectations in terms of what we need from technology either in the businesses we all work in or engage with. What therefore started for many businesses as an accelerated drive to upgrade technology forced by the pandemic - with all the complexities of speed, cost and implementation - has in fact delivered a 'Digital Transformation' that is bringing even greater opportunities for many companies and a revenue generating lifeline for others.

The immediate impact

The recent McKinsey Global Survey of executives stated that ‘companies have accelerated the digitisation of their customer and supply chain interactions and of their internal operations by three to four years as a result of COVID.'¹ The speed of the change is certainly ambitious, but given the change in demands for services and the newly-realised operational risks, businesses have had very little choice but to commit to such transformations.

Each innovation servicing staff, customers and/or third parties involves a complex digital transformation. This includes implementing the processes, tools and cultural change that keep the technology running safely and securely, which ultimately can take months or years to complete. To add to this complexity, the technology is evolving so quickly that by the time large transformations are complete, they may already need refreshing – making this a continuous process and cost that needs to be carefully managed.

Who succeeded in managing through this disruption?

Continuous digital transformations like this can only be successful when they have the right combination of talent, project management capabilities and culture, at the right time. The COVID pandemic created a wave of activity between those who were falling behind on this curve, the tech-cautious, and those who were able to benefit from the disruption by being tech-enabled:

1. Businesses who were tech-cautious could only respond reactively to the pandemic. This meant there would have likely been an immediate revenue impact and high cost to quickly deliver short term technology solutions needed to enable new, or protect existing, revenue generators. These fixes could then be more complex and costly to replace or upgrade in the years to come.
2. Businesses who were tech-enabled could more fluidly transfer revenue generation from traditional activities to digital means. They may have needed to scale up these capabilities or enhance them to manage the change in demand (e.g. migrate to the cloud) but this would ultimately be at lower transformational cost than the tech-cautious.

How did they succeed?

In both business types, there are opportunities to develop these digital capabilities internally, using existing capacity, or to seek combinations with other businesses to leverage an accelerated growth trajectory.

Well-planned and integrated acquisitions enable a quick inheritance of a better technological capability and/or talent to manage a more tech-centric way of working. This could include a tech-cautious acquiring a more tech-enabled competitor, or tech-enabled businesses coming together to accelerate market reach and benefit from operational synergies. Although these can take time to integrate fully, the end result of a combination like this can catapult a mid-market player into a market leader within a matter of months.

How an investor might help

Sovereign Capital has a proven track-record of working with quality management teams to deliver robust growth both organically and through strategic acquisition, and of supporting digital transformation. This includes a number of examples across our portfolio companies:

1. Premier Park, a business providing leading car market management solutions, which has completed three acquisitions of which one is an image processing and workflow management software provider. This is now an integral part of the client service offering and supports site management processes.
2. Murgitroyd, an international intellectual property services provider who has enabled a greater ease of client interaction via the development of a portal facilitating real time pricing for European Patent Validations. This tech-enabled innovation can then be leveraged across future acquisitions.

We are keen to speak with business owners who may be curious to learn more about what a partnership with Sovereign could look like, whether that’s bringing over twenty years of strategic sector experience that can challenge and strengthen ambitions for growth, working closely with our investment team to identify, refine and execute acquisition opportunities or identifying and sourcing top-tier talent, such as Chair, NED or other c-suite roles to support a growing business.