How Systems & Digital Drive Business Value for Private Equity (PE)

Private Equity (PE) ownership of mid-market companies is increasing. Of course, PE houses are driven by valuations and these days IT/tech is at the heart of business value.

There are 4 areas where IT strategy and execution drive value in the PE space:

1. Building in scalability

PE houses building an integrated group of companies will often aim for one of the companies to be the “platform” onto which the other businesses can be added.

The platform company will have well-implemented processes, technology and organisation in order to run smoothly, provide good service at low cost, and to provide clear, flexible and timely management information. It will have the capability to grow and deliver high margins.

Most importantly the platform company may be valued at twice the multiple of the others due to its ability to assimilate and support acquisitions.

2. Due diligence

IT/tech due diligence in mid-market deals is often overlooked or a box-ticking exercise because traditional DD providers use lengthy old-fashioned checklists. These provide limited real value and lack commercial insight (and are often hugely over-priced!).

The basics need to be carefully checked: security, compliance, risks, contracts, people, suppliers and cost and legal exposures need to be assessed and itemised. But in the mid-market, DD expectations need to be realistic and, most importantly, value-focussed buyers need insight into future opportunities (rather than endless lists of risks).

3. Enabling marketing innovations

These days almost every marketing innovation has its roots in technology. Both businesses and consumers are increasingly finding, choosing and buying products and services online.

Brands that want to engage with consumers will tend to do so by establishing a 1-to-1 relationship with them and offering them immersive digital experiences that provide value to the consumer and insight and lock-in for themselves.

For B2B suppliers, the ability to integrate your systems with your clients can be critical, and areas like security and reliability can enable you to acquire and retain high-value corporate clients.

For marketing innovations to work successfully, marketing and tech execs need to work hand-in-glove.

4. Digital transformation

Even a smaller company can radically improve its internal operations and market proposition using digital technology. These days, a company’s size is no indication of its ability to transform the entire market.

We define 4 types of digital transformation depending on whether you are looking to transform your business or marketplace, your customers’ experiences, or your internal operations and risks. You can read more about it here. For PE-owned businesses, or businesses looking to maximise their value to PE houses, all 4 are important areas.

Our Principals work with companies on these issues every day. To discuss these or any other business IT strategic challenges just contact us. It all starts with a conversation.

Freeman Clarke is the UK’s largest and most experienced team of part-time (we call it “fractional”) IT leaders. We work exclusively with ambitious organisations and we frequently help our clients use IT to beat their competition. Contact Us and we’ll be in touch for an informal conversation.