The digital revolution is accelerating, driven forward by the urgent step-change required of corporates and governments in the wake of the COVID-19 pandemic. Environmental deterioration and geopolitical disruption of supply chains are piling on further pressure to transform. M&A activity among the consultancies and B2B software providers that enable the necessary change soared in 2021. Despite macroeconomic uncertainty, demand to acquire and invest in these highly innovative firms shows no signs of abating.

The ‘transformation enablement’ segment has grown rapidly in the last 20 years. The need for digital transformation, in particular, has been relentless and universal. With megatrends such as the pursuit of sustainability, the evolution of work, and demographic shifts acting as further catalysts, digital transformation is now fundamentally entwined with business transformation.

“The need for transformation is acute across both public and private sectors,” says Paul Dondos, founder of Artemis Origination. “This has led to a boom in the number and variety of firms helping businesses successfully respond to, or better still anticipate, dramatic change in their internal and external environments. The segment now boasts a long, constantly evolving tail of specialist creators, advisers, implementers, and managers. Larger organisations want a piece of that – often one piece after another.”

Digital M&A

But while M&A offers opportunities for these ‘enabler firms’ to secure capability and talent in bulk and remain competitive, without clear, cohesive deal origination (and integration) strategies there is little guarantee that transactions will deliver sustainable growth and profitability.

“While M&A can often bring rapid proposition improvement, with synergies and diversification to boot, it also entails significant risk,” says Dondos. “Target firms for the segment are by nature highly complex, operating as they do at the forefront of innovation. Finding firms with the quality, resilience and scalability to succeed under new ownership is challenging. Bringing their owners and operators from one successful growth path into another can be harder still.”

Choosing the right deal origination advisor is often critical to success.

“A good origination advisor will maximise the breadth of compatible assets, increase transparency of fit, value and actionability and help buyers and investors deliver swifter, more compelling, better-structured bids,” says Dondos. “The best will help target owners navigate the early stages of what, typically, did not figure in their short-term planning horizon. These outcomes are precisely what all the data, relationships, systems, technologies and talent we have at Artemis Origination were custom-built to achieve.”

Artemis Origination

Buyside advisors cover a broad spectrum, both in terms of where they play in the investment cycle (from initial market research to transaction completion) and in the ways they deploy technology, people and specialisation to deliver results.

Artemis works right through the investment cycle, from early thesis development for PE and refinement of inorganic growth strategies for corporates, to identification, selection and engagement of targets to negotiation of non-binding offers. It will usually step back only once a letter of intent is agreed. “Continuity,” says Dondos, “is key to successful origination, given the importance of building multiple pivotal relationships and the cumulative complexity of these deals.’

The focus is exclusively on the ‘transformation enabler’ segment. “The rate of change in our segment is such that generalists inevitably lack the credibility to engage effectively with clients, let alone with target owners, who themselves are typically specialists in new and fast-evolving fields.”

“By covering the full deal origination process yet focusing on a single coherent area of the global economy, we carry high levels of proprietary data and personal capability in the business. That not only improves the speed and accuracy of target selection, but also makes for more successful conversations with the right target owners – and better transaction outcomes. While other advisers promote all-powerful data algorithms, or adopt a numbers-driven, recruitment-style approach to grooming targets at volume, we believe only focused, IQ and EQ-rich human expertise, with the right data and relationships, channelled through innovative systems and technology can consistently provide the highest return on investment.”

Since its early days, as the buyside practice at global investment banking boutique Equiteq, to its recent spin-out as a fully independent business earlier this year, the firm has already successfully yielded over $3bn of enterprise value in transactions for tier 1 buyers looking to invest in digital enablers of public and private sector transformation.

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