Technology Enabled Business Services
Technology Enabled Business Servcies
Technology Enabled Business Services
KATALYST is a special purpose company founded by Gordon Brooks and Housatonic Partners. With more than $40 million in available capital, KATALYST’s charter is to find brick and mortar business services and technology companies to acquire which provide a foundation to transform an industry or industry segment through the strategic use of technology.
Technology is rapidly advancing at a pace never witnessed before and mega trends such as The Internet of Things and Cloud Computing are changing how whole industries will operate, compete and provide solutions. Change and disruption in business services through the use of technology is inevitable. KATALYST’s mission is to spot these opportunities and capitalize on them for competitive advantage. Our primary focus is on technology enabled business services companies in the Insurance and Healthcare Markets.
Housatonic Partners is a private equity investment firm founded in 1994 with $1 billion in capital under management. The firm focuses on growth buyouts and recapitalizations of profitable service businesses with highly recurring revenue. In partnership with exceptional management, Housatonic has led investments in more than 60 small to mid-sized companies.
Gordon Brooks has more than 30 years of science and technology experience with companies like CSC, ADP, Oracle, Cambridge Technology Partners, Breakaway Solutions, Symphony Teleca, Quercegen Pharmaceuticals and Return on Intelligence. Gordon has founded and helped launch six new companies in the last nineteen years resulting in two IPO’s with a combined market cap of over $8b, one spinoff and sale, seven entity sales and seventeen acquisitions.
Strategy – Insurance and Healthcare
Existing Business Services + Technology = Transformed Services
Multiple constituent based services that can be revolutionized by technology (IoT and Cloud Computing)
- What do stakeholders really care about?
- What aren’t they getting?
- How can we tie them together and make it sticky?
- Where is there fragmentation?
- Where is there a consolidation opportunity?
- Where is there a disintermediation opportunity?
- Where is there a regulatory opportunity?
- Can technology change the game?
- Who provides services to some or all of them now?
- Who has the distribution we can effectively utilize?
- Who has good recurring revenue? ($15m – $50m+)
- Who has solid EBITDA?
- Who is for sale?
Desired Characteristics of Target Market(s)
- Large market potential with real problems to be solved
- Market has traction but no clear winner
- Brick and Mortar transformation opportunities
- Recurring revenue
- Superior growth rate potential
- IP-led services
- Aggregator of sensor or other IoT data
- Analytics and data opportunity
- Has the potential to expand to adjacent industries or markets
The Intersection of Brick and Mortar with Technology to Transform a Market or Markets
Investment Criteria – Business Services
We carefully screen investment opportunities to establish whether they are consistent with our investment strategy. Specifically, we look for the following characteristics:
- REVENUE GROWTH: The company should have long-term internal revenue growth potential. Is the market for the company’s service or products growing? Is there a legitimate opportunity to acquire other firms in the same industry on attractive terms? There should be high barriers to competitive entry once transformed.
- RECURRING REVENUES: The business should generate recurring revenues from customers. Over what period of time do customers re-order? What is the rate of customer churn? Why do customers switch?
- EBITDA MARGINS: The business should have attractive and sustainable operating margins. Does revenue growth produce operating leverage? The target EBITDA is $5m to $10m.
- MODERATE TO LOW CAPITAL INTENSITY: What are the working capital and capital expenditure cycles and requirements? What is the return on tangible capital for the business?
- INDUSTRY POISED FOR DISRUPTION: Is the market served being disrupted or is poised for disruption. Examples are disintermediation, new competition, alternative ways to buy or deliver services, etc.
- MAJORITY OWNERSHIP: We are searching for companies seeking complete or majority buy-outs of investors (private or public), families, or strategic owners.
Investment Criteria – Technology Solutions
EARLY STAGE: The company should be pre-venture capital funding. The investors/founders should be willing to take an alternate path to financial benefit by selling their business and joining a Business Services Company which will have far lower risk and still provide a large upside.
FOUNDATION FOR OUR BUSINESS SERVICES COMPANY: The company should have unique IP which can be utilized as a base differentiating technology for a Business Services Company. There should be high barriers to competitive entry.
DISRUPTIVE TECHNOLOGY: The technology should allow us generate recurring revenues from customers in a way that changes how companies buy, sell and deliver services.
Why IoT – Largest Market Growth in History
- Gartner: IoT services spending of $69.5b in 2015 and $263b in 2020
- IHS Automotive: Number of connected cars will grow more than six-fold to 152m in 2020 from 23m in 2013
- Navigant Research: Worldwide installed base of smart meters will grow from 313m in 2013 to nearly 1.1b in 2022
- Morgan Stanley: Driverless cars will generate $1.3 trillion in annual savings in the United States, with over $5.6 trillions of savings worldwide
- Machina Research: Consumer Electronics M2M connections will top 7b in 2023, generating $700b in annual revenue
- On World: By 2020, there will be over 100 million Internet connected wireless light bulbs and lamps worldwide up from 2.4 million in 2013
- Juniper Research: The wearables market will exceed $1.5 billion in 2014, double its value in 2013
- IDC forecasts: The worldwide market for IoT solutions will grow from $1.9 trillion in 2013 to $7.1 trillion in 2020
IoT – It’s All About Services and Data
- Banking and Financial Markets
- Energy and Utilities
- Connected cars
GE is estimating that the “Industrial Internet” has the potential to add $10 to $15 trillion (with a “T”) to global GDP over the next 20 years, and Cisco increasing to $19 trillion its forecast for the economic value created by the “Internet of Everything” in the year 2020. “This is the largest growth in the history of humans,” says Dr. Jansz Bryzek, CEO of Jyve and organizer of the Trillion Sensors Summit.