Partners Group’s Nguyen: All sectors can benefit from digital transformation

Partners Group's first digital transformation investment came in 2018 with GlobalLogic. Earlier this year, the firm bought Version 1.

Kim Nguyen, Partners Group

In April, Partners Group announced the acquisition of Version 1, a Dublin-headquartered digital transformation services provider, from Volpi Capital. Version 1’s services include application modernisation, cloud migration services, and cloud-native software engineering, which involves the development of applications in the cloud.

The acquisition was made as part of Partners Group’s thematic focus on digital transformation. PE Hub Europe caught up with Kim Nguyen, co-head of the private equity services business, to get his thoughts on digital transformation, its use in value creation and which sectors need it the most.

Nguyen is on the boards of the firm’s portfolio companies Cerba, Foncia and Schleich. Prior to joining Partners Group, he worked at Bridgepoint, Nestlé and Bain & Company.

What is digital transformation and how does it aid value creation?

Digital transformation is a specific value creation type amongst the digital value creation playbook. It can mean a major transformation, or in some cases you only digitalise some of the processes within your value chain. It is primarily about going into your value chain and breaking down your processes into single steps. Then you think about each step and what digitisation can do to that specific process.

Usually, the two main benefits are reducing the cost position and increasing revenues. Through digitalisation, you can improve the way you interact with your clients and as a result, improve customer satisfaction. You can also find new services that you can sell to your clients through digitisation, or get better access to markets, like through e-commerce.

Which sectors are especially experiencing tailwinds from digital transformation?

All sectors can benefit from digital transformation. The emphasis varies between sector and company. In services, for example, it is all about client satisfaction to ensure sustainable organic growth. Hence, automation of manual, low value-added activities is a key enabler to free up time of client facing front-office roles and to redirect the focus on satisfying client needs. This, combined with user experience and interface design, can lead to significant benefits on revenue and the cost side. This is what we have been doing with our portfolio company Emeria.

In the consumer sector, new revenue streams can be accessed through digitalisation such as new sales channels or digital content, which can support the generation of additional revenue. In the health and life sector, digitalisation can make certain processes in care delivery more efficient and hence help take cost out of healthcare systems.

Are there sectors lagging behind?

There are a few indicators that illustrate the progress of digitisation. One of which is the migration of data and applications into the cloud. Today, only 10 percent of mid- to large-sized companies have done the full migration, leaving a lot of runway for the next 10+ years across all sectors. This is one of our investment theses for Version 1, which generates 75 percent of its revenues from the cloud ecosystem including application modernisation, cloud migration and cloud-native software engineering.

To select a few sectors for illustration, in the utilities sector, applying data analytics can result in significant operational efficiency and improve safety, maintenance and planning. We are only at the beginning of a digital transformation here. Other sectors have already undergone digital transformations and are embarking into the next waves of digitisation. An example of that is the retail financial services sector, which is facing a massive challenge in the form of cyber security that needs to be addressed.

What challenges does digital transformation present?

Not many investors are willing to do the real, major digital transformation because it takes time, resources and significant investment. Similarly, not that many CEOs and management teams have the experience needed to execute the transformation. Hence the importance of having advisors coming in, such as Version 1.

Is Partners Group interested in more companies like Version 1, or will you focus on implementing digital transformation in companies you acquire?

Yes, and yes. Our first significant investment into that space was GlobalLogic, which we acquired in 2018. It is a digital transformation specialist in the sense that, more than Version 1, it is very much focused on client-facing software development. We exited GlobalLogic in 2021 to Hitachi – that was a very successful investment for us. As part of our thematic sourcing, we thought, the world is moving towards digital and there are not that many people who actually know how to do it. Let’s go deep into the sector. We’re looking at several opportunities in Europe and in the US to increase our presence in that space. There’s so much benefit in quite literally transforming your business. You will create a company that will be better positioned competitively.