By: Aman Singla, Akhil Anand Vajjhala, Varshika Prasanna (NYU), Anthony Borgese, Mustafa Bayramli, Shuishan Xiao (UPenn)
Introduction
Goldman Sachs’ Merchant Banking Division and private equity firm Everstone announced in August their minority stake acquisition in Infostretch, a digital engineering firm. Infostretch focuses on helping its clients accelerate their digital initiatives through proven and intelligent data-driven strategies to modernize their systems. Through this acquisition, Goldman Sachs and Everstone hope to be able to profit off of the 10.4% annual growth in the digital services industry and grow their presence there. On the other side of the deal, Infostretch hopes to take advantage of Goldman and Everstone’s network in healthcare, financial services, and technology to grow their business in these areas.
Incorporated in 2004, Infostretch is headquartered in Santa Clara, California and led by the CEO and Founder Rutesh Shah. The PE-backed company provides professional and digital services, which include strategy for blockchain integration and digital development. Infostretch Corp. has more than $50 million in annual revenue and is a leader in the digital engineering services sector.
On August 18, 2020, an undisclosed amount of development capital was provided to the company by Everstone Capital and Goldman Sachs Merchant Banking Division. The investment will help accelerate the company's business growth and expand its digital engineering service offerings for both enterprise and digital-native companies.
Overview of Everstone
Everstone Capital is an India and Southeast Asia focused investment firm with over $4bn in private equity and real estate funds, as well as business in venture capital and green infrastructure.
The private equity fund at Everstone Capital is worth around $2bn and consists of investments primarily within India and Southeast Asia. They make investments “through control, minority, and platform investing”. Their private equity investment philosophy “emphasises proactive deal sourcing, as well as an active and hands-on operating style to deliver long-term returns”. In 2018, Everstone’s private equity fund underwent a major restructuring, with 14 employees exiting the firm – of which 4 were managing directors and 3 were executive directors. According to a study conducted by Kiddy and Partners, “the company has become top-heavy and there were too few junior people to do the leg work [in terms of analysts and associates]”.
However, according to Sameer Sain, the co-founder and chief executive of Everstone Capital, "We have added excellent people...and grown our team as needed but we felt that it was time to ensure we had the right organizational structure and talent for the future...,".
"Digital will be the core differentiator for businesses of all sizes in almost every segment over the next five to ten years." - Avnish Mehra, Senior Managing Director at Everstone Group, on the investment into Infostretch.
Overview of Goldman
Goldman Sachs Group, Inc. is a global leader in the financial services industry. Headquartered in New York City, the company offers services in investment management, securities, asset management, prime brokerage, and securities underwriting.
The Company includes 4 business units…
1. Investment Banking
Goldman Sachs is one of the leading M&A advisory firms, being at the top in sizes of transactions. In 2015, investment banking accounted for 21% of total company revenue.
2. Global Markets
This segment consists of revenues gained from the bank’s trading activities, both on behalf of its clients and for its own account. Global Markets accounted for 37% of total revenues in 2017.
3. Asset Management
The Asset Management division provides investment advisory and financial planning services and offers investment products to a diverse group of institutions and individuals worldwide. This division generates revenue mainly in the form of spreads, or management and transaction fees. In 2015, revenue generated by the Asset Management division accounted for 18% of total company revenue.
4. Consumer and Wealth Management
This sector includes management and other incentive fees and results from deposit-taking activities related to the firm’s wealth management business
"Infostretch has built an impressive brand and list of loyal clients in healthcare, financial services and high tech. Their global presence and ability to apply the latest capabilities in areas like AI and analytics with best practices in Agile and DevOps set them apart in the digital engineering space." - Harsh Nanda, Managing director in Goldman Sachs’ Merchant Banking Division
Overview of Infostretch
Infostretch is a digital engineering services firm that focuses on advancing digital initiatives of enterprise and digital-native companies. Their customer list includes BMW, Knipper, L'Oreal, Marriott, Roche, Silicon Valley Bank, Starwood, T-Mobile, and Vodafone.
They utilise technical expertise, agile methodologies, and data-driven intelligence to streamline human/tech interaction as well as modernize systems of engagement. They work across the software development cycle from planning & strategizing to execution & implementation. Their team of 1,200+ global engineers offers core capabilities in cloud, data, IoT, mobile, and UI/UX, leveraging data and analytics in every engagement to speed cycle time, increase efficiency, and reduce risk.
Infostretch enables their clients to take advantage of the latest innovations in the digital field and provide them with a sustainable edge over their competition. Their goal is to solve their client’s most challenging technical problems with innovation and gumption.
"The expertise and reputation we have built over the last fifteen years have put us in the position to advance the digital initiatives of some of the world’s leading companies and brands. This investment will enable us to build on those strengths and take advantage of the growing need for more innovative digital solutions in verticals like healthcare, financial services, and technology." - Rutesh Shah, CEO and co-founder of Infostretch
Synergies
There are multiple potential synergies in this transaction that would benefit both parties. Although industries across the globe are rapidly modernizing, there is still much room for improvement in terms of digital efficiency and software integration. Many areas such as healthcare, insurance, and many traditional industries still use paper-based systems and other old-fashioned record keeping and management systems. Infostretch’s platform is designed to rapidly modernize and improve efficiency in these systems, which is predicted to be a highly demanded service in many industries in the coming years. Infostretch works across all stages of software development within companies, and they hope to utilize Goldman and Everstone’s expertise in industries such as healthcare and financial services.
On the other hand, Goldman and Everstone also have important synergies in this acquisition. Although there are many companies that offer integrated digital solutions, few are as successful and advanced as Infostretch. With high profile customers such as AWS and Adobe, Infostretch has proven the marketability of their services. In addition to this, their platform is more advanced than many of their competitors, as it integrates some of the latest advances in AI and analytics to improve functionality.
Overall, as Infostretch’s service is applicable across many industries and is predicted to be highly demanded in the near future, Infostretch’s high potential platform and Goldman and Everstone’s network and influence will create a potent combination to expand Infostretch’s services into untapped industries.
Risks & Uncertainties
One possible risk taken by Everstone Capital and Goldman Sachs by this investment is that digital engineering is a constantly evolving field, with new technologies on the rise. Infostretch will have to adapt to these new innovations to provide high levels of software quality to ensure customer satisfaction. Hence Infostretch will have to focus on R&D to have an edge over their competitors. This means that Everstone and Goldman might have to stay on for longer than expected before exiting. Furthermore, Infostretch must provide the same/better experience on a digital platform for enterprise companies compared to their existing platforms. For this to occur, data must flow seamlessly across platforms. Maintaining digital continuity is essential for digital engineering services, like Infostretch, to thrive. One of the biggest uncertainties about this investment is that Infostretch has a negative growth rate, -1.17%, according to Craft.co – a company that provides human capital and operating metrics for companies. This growth rate, coupled with a plausible shift from cloud computing to edge computing given the rise of big data and the need for efficiency across corporate branches, Infostretch might not be the most certain investment.