M&A v. IPO: A Fireside Chat with Industry Leaders Recap

Several hundred executives and investors participated in Clearsight’s annual Digital Innovation Summit last month, offering insights and connections to carry us through the rest of 2022. Philo Tran, Managing Director and Head of the Digital Transformation practice at Clearsight, moderated a virtual fireside chat with Shashank Samant, CEO of GlobalLogic, and Bruno Guicardi, Co-Founder & President of CI&T (NYSE: CINT). Focusing on their respective M&A and IPO transactions in 2021, Samant and Guicardi shared their deal experiences and thoughts on the future of product development and IT services, among other topics.

Evolving with Success  

Samant and Guicardi have each led their organizations and clients through global changes while keeping pace with an evolving market. Samant held previous roles at IBM and HP, and now finds motivation through his work at GlobalLogic by envisioning the world not as it is, but how it should be. In using his passion to help make the world more connected, interactable, navigable and transactable, Samant channels the energy from working with his team to form true partnerships and create successes for GlobalLogic’s clients, employees and investors.

Guicardi co-founded CI&T in 1995 with the simple goal of wanting to be part of the internet. In the years since, Guicardi and CI&T have grown their ambitions, achievements and goals. A software development company in 1995 looked quite different than one does today – yet still emphasized “digital experience” before anyone else called it that. As such, Guicardi highlighted the need to keep reinventing CI&T and setting higher bars to keep growing the business, their team and their abilities.

Sector Trends

When discussing the anomalous markets of 2021, Samant noted the potential for disruption was building before the pandemic shook global markets and industries. The power of technology and its uses in businesses was not core to many companies prior to COVID, but the pandemic shifted priorities. Those that were not digitally oriented or lacked a well-rounded digital strategy spiraled in Q2 2020, while businesses able to offer transformative digital services experienced tremendous growth. Samant added that while “digital” is a frequently used term, it cannot be superficial – it instead involves restitching entire ecosystems to put the customer front and center, then remapping from there.

A speed limit to the sector’s tremendous growth last year, Samant and Guicardi agreed, was talent. Historically, a few key sectors required talent: financial services, healthcare and manufacturing. Now every sector is demanding talent. It’s one thing to hire talented employees, but it’s another, larger and more time-intensive task to develop them into leaders. Guicardi noted that to grow sustainably, there must be consistent delivery for clients. In maintaining the quality of deliverables and leadership as the company and its people evolve, even with attrition, the company will be better positioned to make decisions that help their clients succeed.

Experiences with M&A

Regarding their landmark transactions, Samant and Guicardi shared a goal to secure the best outcomes for their respective employees and clients. However, GlobalLogic and CI&T’s paths to that goal were quite different. In considering their next chapter, Samant and the GlobalLogic team used the Rule of 40 as their North Star to reach $1 billion in revenue, which quickly came to be in 2020. While GlobalLogic was preparing for the public markets, Hitachi approached them with a strong value proposition. GlobalLogic saw Hitachi as a high-quality brand with a great canvas for their clients and employees to be fulfilled – and seemingly endless possibilities to “be the kid in the candy shop,” according to Samant. The deal was completed in July 2021, and less than one year later the partnership proved its value.

The onset of the war in Ukraine in February 2022 put roughly 7,000 GlobalLogic employees, ~30% of the workforce, in danger. Hitachi and GlobalLogic’s shared primary motive was safety for their employees and their families, and quickly began the relocation process. Samant commended Hitachi’s long-term worldview and aid in moving the locus of GlobalLogic’s business to Western or Central Europe in light of the ongoing instability in Ukraine. As of the Summit on March 31st, GlobalLogic had not accrued any employee fatalities or injuries as a result of the war, and had returned to 90% productivity.

For Guicardi and CI&T, the goal of achieving a great outcome for clients and employees came by way of the public markets. Early on, CI&T eliminated the possibility of a strategic sale to keep their leadership team and culture in place. From there, Guicardi and his team weighed the long-term effects of a potential transaction. Even if they received a great valuation, Guicardi and the leadership team believed the future would not be as bright for their people if CI&T was not in the driver’s seat. In 2019, Advent International completed a minority investment in CI&T after watching the company grow ten times in the span of a decade. Advent’s experience in the public markets proved invaluable for Guicardi leading up to the IPO as their shared agendas cut through the noise of the process.

Advice for Businesses

The digital arena can be noisy with buzzwords and similar descriptions as businesses seek to carve out their niche. To discern a good business from a crowded market, Samant suggested following the Four Ps: passion, product, performance and pride.

• Passion: How passionate is the team about their niche? In services businesses, it is hard to be everything to everyone, so is the niche centered around an industry, technology or offering?
• Product: If there is a valid niche, how does that translate into a product offering for the market? Who are the clients – Fortune 1000s or disruptors?
• Performance: If both passion and product are good, do the financial metrics support these? Client concentration and gross margin are key here.
• Pride: The final piece of this puzzle is entirely dependent on the aforementioned three. Passion, product and performance build pride; if one piece is missing, it results in a lack of pride.

Guicardi added that the sales story must translate to the company’s financials. If the gross margins and CAGR of a business don’t support its positioning, it will be a tougher road ahead.

Samant and Guicardi both lent incredible perspectives on their own experiences in this unprecedented M&A market, and we are grateful for their participation in making our 2022 Digital Innovation Summit a success. If you would like to hear more from this discussion, please click here. To learn more about the summit or discuss what we’re seeing in the M&A market, please reach out to Clearsight’s Philo Tran at ptran@clearsightadvisors.com.