M&A

Validating investment decisions

New digital infrastructure markets are not easy to navigate; software, hardware and networking are converging and diverging to disrupt existing ecosystems. At STL Partners, we combine our methodical approach with deep sector expertise to support corporate clients, private equity and start-ups/scale-ups. We leverage our practice area resources in domains such as edge computing, data centres and private networks. We can provide our clients with credible support throughout the transaction lifecycle, from identifying potential investment targets to commercial due diligence .

Example Case Study: CDD for multi-site data centre acquisition

A European data centre operator engaged STL to conduct commercial due diligence on a proposed carve-out of two data centre facilities and accompanying business unit from an IT service provider. To validate the expected value derived from the acquisition, we evaluated key downside risks including validating forecasted churn assumptions through customer interviews, as well as evaluating customer concentration, industry split and company sizes to evaluate opportunities to grow revenues through customer retention and upsell.

STL identified a significant churn risk related to 13% of the target’s total revenue, related to 46% of an MSP’s spend with the target, which was at risk due to their own customer churn. STL identified this through multiple interviews with the customer in question, resulting in open disclosure and a material price reduction for our client in the acquisition.

In parallel, we identified several potential upside opportunities for the client, including:

• An MSP actively seeking to divest its own data centres – presenting a potential acquire and host opportunity
• Another MSP aiming to consolidate disaster recovery (DR) suppliers and expressing interest in a strategic partnership with our client.