Hunting for technology's hidden gems

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Nobody’s perfect, and neither are markets. Investors often bid up the value of high-growth companies obviously benefiting from disruptive digital transformation trends. But they may overlook what we call hidden gems: business units or offerings benefiting from those trends but obscured by a larger whole.

As activist investors increasingly focus on technology to find the kind of opportunities hidden gems represent, it becomes more important for technology executives to identify them first.

Our hidden gem report identifies three distinct types:

  • Geodes (sparkly gems inside dull exterior stones): companies with enabling technologies that suddenly have much bigger market opportunities as a direct implication of cloud solutions and the ability to store, manage and analyze much larger data sets.
  • Sapphires (gems made more valuable by small elements within the larger mineral structure): companies in which management is proactively transforming but the market doesn’t see it yet. Sapphires may have enterprise value hidden in a division whose revenue is small compared to the whole — but is growing at a faster pace.
  • Rubies (gems in the red because of elemental impurities): companies containing diverse business units that have been slower to adjust to disruptive technologies. Separating a ruby’s business units allows natural buyers to emerge for each — potential acquirers who would not consider the “unified” business as a target.

But finding your hidden gem may be the easy part. The bigger challenge likely is the process of change and consensus required for boards and management teams to figure out how to unlock their hidden value. Download our drill-down Top of Mind report, Hunting for hidden gems.

“Disruptive technology is causing some companies to erupt in value while others are destroyed and disappear. Meanwhile, many challenged technology companies have ‘hidden gems’ among their operations — whose value they could unlock if they only looked at them in the right light.”

EY - Jeff LiuJeff Liu
Global Technology Industry Leader
Transaction Advisory Services