The Canada Pension Plan Investment Board has sold its stake in GlobalLogic Inc., a U.S. digital-engineering company, for what appears to be a gigantic gain on the investment.
Hitachi Ltd. said on Wednesday it will pay US$8.5-billion for the company, including CPPIB’s 45-per-cent stake worth US$3.8-billion.
CPPIB bought that piece of the company in 2017 from private-equity firm Apax Partners. Just more than a year later, in May, 2018, Apax sold its GlobalLogic holding, equal in size to CPPIB’s, to Partners Group AG in a deal that valued the entire company at US$2-billion.
CPPIB did not disclose its purchase price, but Indian trade publication VCCircle said at the time the 2017 transaction where CPPIB bought in valued GlobalLogic at US$1.5-billion, which would make CPPIB’s initial investment worth about US$720-million.
San Jose, Calif.-based GlobalLogic has more than 20,000 professionals in 14 countries, with significant operations in India. The company operates design studios and software product engineering centres.
Hitachi said GlobalLogic has what it calls “chip-to-cloud” software product engineering technology. It has more than 400 customers across multiple industries from communications and financial services to health care and media.
Hitachi cites Zinnov, a research and advisory company specializing in engineering and digital transformation, in saying the potential market for digital engineering will grow to US$1.1-trillion by 2025, a compound annual growth rate of 19 per cent.
The sales price is rich: Hitachi said it will pay more than 37 times the company’s estimated 2021 EBITDA, or earnings before interest, taxes, depreciation and amortization, further adjusted to exclude stock-based compensation and other expenses.
In the fiscal year completed in March, 2020, GlobalLogic reported US$771.1-million in sales, with adjusted EBITDA of US$179.5-million and adjusted operating income of US$63.4-million. Sales and EBITA increased by roughly 20 per cent from the prior year, while operating income doubled.
Hitachi said GlobalLogic’s revenue is expected to reach approximately US$1.2-billion this year, with adjusted EBITDA margins of more than 20 per cent. The company said it aims for GlobalLogic to hit US$1-billion in adjusted EBITDA by 2028.
In 2018, when Apax sold its stake, GlobalLogic had US$500-million in annual revenue.
In a statement, Hafiz Lalani, head of Europe for CPPIB’s direct private equity group, said the pension fund has owned GlobalLogic over “a period of rapid growth where digital transformation and next-generation technologies have become critical to the future of almost every sector of the global economy. ... In that time, GlobalLogic performed very well and generated exceptional investment returns, including during the COVID-19 pandemic when the need for digital transformation only accelerated.”
The deal is expected to close in the third quarter.
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David Milstead