How RingStone's tech due diligence offering optimises value
In today’s digital-driven environment, the traditional approach to due diligence on technology can fall short of reality. Hazem Abolrous, Managing Partner at consultancy RingStone, explains how the firm’s new ‘Technology Due Diligence 2.0’ offering fills the gaps in order to uncover previously hidden value and risks for optimal value assessment.
Today, the speed of technology today is enabling new business models, creating new markets, and disrupting established products faster than ever before. Compared to ten or even five years ago, technology is now undoubtedly in the driver’s seat. Most businesses today are either technology companies or fully technology-enabled in one form or another. And, technology is no longer just an enabler, but having an acute impact on the EBITDA and investment exit multiples.
Even the most traditional of businesses have an IT backbone that determines not only their ability to execute efficiently and stay competitive but also their potential growth.
LBOs (leveraged buy-outs) typically carried some financial credit risk along with unavoidable management and execution risks. But unlike venture capital, private equity has historically carried minimal risks related to already-proven products and established markets for the asset categories they focus on. This is changing due to increasing legacy software in established products and the wake of faster speed of technology development.
How does this impact the industry?
The value creation cycle and investment have to change in response to shorter holding periods. The lines that were once distinct between private equity, growth equity, and venture capital are quickly blurring. The investor’s technology know-how is also changing and the people they are hiring are increasingly having a multi-disciplinary background.
The nature of technical diligence is also changing. This space has historically been fragmented and was once a last-minute exercise close to when the deals happen. Tactically, diligences were focused on surfacing static risks, following a due diligence checklist or conducting simple checkbox exercises. Regardless of the provider, the offerings are largely the same with some being more polished than others.
Both large consulting firms down to small one-man shops certainly offer value and bring certain advantages, but the technical due diligence has largely been a template. A modern approach to how the technology, people, and process support modern-day diligence, a faster cycle, and surfacing agility in risk detection is critically needed by providers to be able to adjust to that shift.
How RingStone meet this challenge?
At RingStone, we decided to flip the equation around, re-think the market space and validate with investors. Sometimes, you benefit by first understanding and studying history and taking a fresh look to be able to predict the future. We re-imagined the investment lifecycle starting with a blank slate in collaboration with people experiencing it on a daily basis. We then developed a deliberate strategy combining the current strengths in top providers as well as fulfilling the gaps we observed in the industry.
We ensured our strategy took into account the key pain-points for investors today as well as the technology shifts and trends. The basic formula includes improvements around people, process, and technology. We then put our investor and company executive hats on and went on a journey to explore with them their top of mind, concerns, pain-points, and their views shaping the future investment ecosystem.
For example, our proprietary software and data are built from the ground up to provide benchmarks, consistency, and sought-after investor KPIs to address their needs. Also, our approach for staffing is limited to only pragmatic senior thought leaders with deep technology experience and strong business acumen. This multidisciplinary approach is no longer optional in our view.
Ultimately this differentiating combination coupled with a data-driven mindset, helps investors land better outcomes than traditional approaches. With this approach, which we call ‘Technology Due Diligence 2.0’, we are positioned to offer the next generation value-add to private equity investors, software and tech-enabled companies.
