Altman Solon is the largest global telecommunications, media, and technology consulting firm. In this insight, we delve into how PE-backed tech companies can generate substantial revenue growth through international expansion and outline a four-step approach that companies can apply.
Classic private equity (PE) value-creation tactics like leverage, multiple expansion, and margin improvement on efficient businesses are not as effective as they once were. Today, revenue growth accounts for over 70% of PE exit value creation. For PE-backed technology companies, the most powerful source of revenue growth is often international expansion.
In our experience working with North American PE-backed technology businesses entering Europe and Asia, structured expansion can deliver revenue growth of roughly five times per focus country within three years, a return on incremental investment of three to seven times per annum, and a net contribution margin of approximately 10% by year three. Geographically diversified revenue also strengthens the exit narrative, broadening the buyer universe and supporting materially higher multiples.
However, we've also observed successful North American tech businesses, often in software, cybersecurity, infrastructure, and other adjacent categories, that hold a 40% to 50% share in their home markets and achieve single-digit market penetration when expanding into European or Asian markets. This is largely due to a poorly planned go-to-market (GTM) international growth strategy.
In our work with PE-backed companies, we've observed reticence toward international growth for the following reasons:
Each of these reservations is legitimate. None is a reason to avoid international expansion; it should simply be approached differently.
When internationalization underperforms, however, the causes tend to be structural and consistent. They include:
Each barrier is real, but each has a known structural remedy.
Scaling into international markets is an analytical and organizational process. The approach rests on four steps.
Step 1: Disciplined country selection. Deciding which markets to enter and the resources required to enter them is the most critical part of the process. This requires an outside-in market attractiveness and right-to-win assessment that identifies a focused set of priority markets and entry paths, including the choice between organic build and tuck-in acquisition.
Step 2: Granular, tangible action plans per market. Once priority markets are selected, the company should draft international action plans that are as granular as its domestic playbooks. This should include named target accounts, identification of channel partners, agreed actions and timelines by customer segment, and unambiguous ownership for each initiative.
Step 3: Working alongside country teams. This is what separates programs that deliver from those that stall. Building the attack plan with local sales leaders and channel managers, not designing it for them, is a critical task that ensures the people executing the plan fully own the outcomes.
Step 4: Governance, KPIs, and CFO endorsement. This means translating market ambitions into approved budgets, named accountability, and leading-indicator KPIs that surface execution gaps in time to address them.
The companies that succeed internationally are not those with the most ambitious plans. They are those with the best-executed ones.
Altman Solon supports PE investors and their portfolio companies in making strategic, commercial, and operational decisions as they scale technology businesses internationally, from pre-deal market assessment through post-investment program execution. Our relevant capabilities include: