Anatomy of a deal: The story behind Equistone’s investment in Acuity Knowledge Partners

April 29th, 2021

Anatomy of a deal: The story behind Equistone’s investment in Acuity Knowledge Partners

While business processes are generally rule-based and repetitive, knowledge processes can be any activity that requires a deep level of domain knowledge and/or analytical thinking. Knowledge Processes Outsourcing (KPO) is a sector that deals in research- and analysis-based outsourcing and exists largely offshore, providing onshore businesses with an opportunity to reduce operating costs, increase productivity and carve out a competitive edge. The strong growth trajectory of the KPO sector has been driven by increasing adoption among an institutional client base that generates sticky, recurring revenues, while the shift to remote working provides another helpful tailwind.

These attractive sector dynamics have helped garner more and more interest in KPO from the buy-out industry in recent years. The private equity firm Equistone targets mid-market, growth businesses and in 2019 they invested in the KPO space via a carve-out of Moody’s Analytics Knowledge Services (‘MAKS’) from the Moody’s group. UK-headquartered MAKS, now rebranded as Acuity Knowledge Partners (‘Acuity’), operates from nine locations including India, Sri Lanka, Costa Rica and China to support the front-office functions of over 350 financial services firms. Their staff perform a range of bespoke research and analytics tasks, ranging from creating deal tombstones to aggregating financials and drafting investment research notes.

Equistone’s Richard Briault joined an investment bank as a graduate and it’s the kind of work he was engaged to do early on in his career. One problem, he notes, is that young M&A professionals are busy navigating a path towards an MD-level position and this type of knowledge process work is ultimately not a key skillset in the context of their professional development.

Offshore, in locations like India, however, there are proficient practitioners who excel at doing it. They leverage their experience and productivity tools to allow them to perform to the same standards as, and potentially more efficiently than, onshore staff.

The case for value creation

MAKS was created by Moody’s through the merger of Copal Partners and Amba Research, founded in 2002 and 2003 respectively. This merger combined deep investment banking and investment research expertise, and under the ownership of Moody’s the business expanded into new verticals such as commercial lending and private equity. By 2019 the business was operating on a platform of steady growth but comprised only 2% of its parent company’s overall revenue. Inevitably, it had become a non-core concern.

Briault, who represents Equistone on the Board alongside colleague Tim Swales, says: “What we found attractive was the proposition that allowed financial services institutions to leverage themselves based on a combination of cost and enhanced quality of output.”

“If you are a UK-only boutique bank and you need to do something overnight, you don’t have much choice apart from working into the midnight hours. But if you've got a partner in India, you can hand it over and pick it back up in the morning.”

“Traditionally operators in this market focused on the bulge-bracket banks. Acuity had proven that one could provide similar benefits, if not more, to smaller financial institutions – broadening the addressable market.”

This “whitespace”, as Briault calls it, was one of the investment pillars. The management calibre was another key ingredient. The management team had already put in place the building blocks for growth by investing in technology, expanding into new verticals and opening new centres in Costa Rica and China.

Towards completion

The business’s near-standalone status within Moody’s provided a clear carve-out perimeter, albeit work was required to put in place independent legal and technology frameworks. Equistone drew on its experience in managing carve-outs from a larger parent, having announced two other such deals alongside Acuity in the month of July 2019 alone.

In the hierarchy of deal challenges, though, the rebrand away from Moody’s Analytics Knowledge Services was near the top.

“Moody’s is undoubtedly a blue-chip brand; however, our diligence suggested the proposition itself was highly valued by customers and that the business had a strong internal culture, giving us comfort to back the management team in launching the new Acuity brand.”

Equistone also spent time exploring the private equity model with the management team, who were steeped in the corporate environment but were new to the buyout model. To support this transition, Equistone and management appointed non-executives with experience of international carve-out situations.

Drax came in to support with key requirements at the pre-deal phase. “We were delighted to work with Equistone on such an interesting transaction, and in particular helping to secure a high calibre Non-Executive Director with well-aligned situational and functional expertise,” notes Mat Cuthbertson, Drax’s MD for Financial Services.

Briault says that Acuity’s people will drive the growth over the coming years, which will be marked by additional investment in technology.

The business case for double-digit growth and more is promising. The volume of activities that require analytical skills and high domain expertise continues to rise and the estimated annual value of the global KPO market will reach $124.29bn by 2025, according to Grand View Research[1].

We can be sure that the European and North American financial sectors will continue to assess how to drive productivity and, increasingly important in challenging economic times, realise greater cost savings. We can be equally sure that they will ask how to supplement knowledge workers with the best strategic insights the global labour market has to offer.

To these questions, businesses like Acuity are providing very suitable answers.


Mathew Cuthbertson
Managing Director, Financial Services


[1] https://www.grandviewresearch.com/industry-analysis/knowledge-process-outsourcing-kpo-market

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