How Systems and Digital Drive Business Value for Private Equity (PE)
Private Equity (PE) ownership of mid-market companies is increasing. Of course, PE investors are driven by valuations, and these days IT and technology are at the heart of business value.
In the PE space, there are four areas where IT strategy and execution drive value:
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 they can add other companies.
The platform company will have well-implemented processes and technology. It will provide good service at low cost, and 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 and technology due diligence in mid-market deals is often overlooked. Or it’s a box-checking 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!).
More thorough DD providers carefully check the basics: security, compliance, risks, legal exposures, contracts, people, suppliers and costs. But in the mid-market, DD expectations need to be realistic. Most importantly, value-focused buyers use DD to gain insight into future opportunities in addition to the risks.
3. Enabling Marketing Innovations
These days almost every marketing innovation has its roots in technology — 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. They offer 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 is critical, and areas like security and reliability can enable you to acquire and retain high-value corporate clients.
These marketing innovations make mid-market businesses more attractive to PE.
4. Digital Transformation
These days, a company’s size is no indication of its ability to transform the entire market. Even a smaller company can radically improve its internal operations and valuation using digital technology.
For PE-owned businesses, or businesses looking to maximise their value to PE houses, digital transformation can be invaluable. Read our article on the four types of digital transformation and how to get started on using technology to make fundamental improvements to your mid-market business.
To find out more, watch the video Focus on Private Equity, where we explain four areas where well planned and executed technology strategy really drive business value.
A Strategy for Solving Systems Integration Problems
For many businesses, systems that don’t work together are the source of major headaches.
Systems that don’t talk to each other create layers of manual work, errors and issues, and make reporting difficult or impossible.
Over time individuals create workarounds and ways to bypass these problems. So their own ways of working become complicated, inefficient and fragmented. Not only does this affect the bottom line, but frequently it affects the morale and ambition of the whole company.
Solving these kinds of problems is really hard because there are really complicated! Getting to the root of the issues can be exhausting; trying to solve them feels like wading through treacle.
Busy directors just don’t have time for this.
So where do you start? First decide on your strategy by getting the Board together and answering these 3 questions:
1. Ambition – how much do you intend to grow and change the business in the coming years; do you need a platform for growth and acquisition, or can you continue to cope?
2. Resources – are you prepared to invest significant resources in projects, or would you rather minimise change and try to tackle problems piecemeal?
3. Impact – how much is this really affecting (or in danger of affecting) the business commercials? Is there a major opportunity to reinvent your business, or just an opportunity to remove some irritations?
The approach may be a dedicated project to address a range of specific issues and to solve them each individually. Or it may be that major replacement projects are needed.
technology may be the easy bit But, whatever the approach, the solution will probably require a combination of technical changes, changes to processes, organization, roles and incentives. There may be difficult conversations and the need to call out people who are personally contributing to these issues.
This discussion can be stormy because systems that don’t integrate often reflect departments or Directors who don’t integrate!
Building a unified consensus around the Board table is the crucial first step. There needs to be a senior member of the team who has time, focus and authority to get to the bottom of these issues and to lead the changes.
We have also created a more detailed CEO’s Briefing on how to address these kinds of integration challenges which you can download below.
Freeman Clarke is the UK’s largest and most experienced team of part-time (we call it “fractional”) IT directors, CIOs and CTOs. We work exclusively with SME and mid-market organisations and we frequently help our clients use IT to beat their competition. Contact Usand we’ll be in touch for an informal conversation.
A CEO’s Briefing: Solving Systems Integration Problems
IT and Systems Integration problems can make a simple business feel complicated. Whether it’s the CRM system, Finance System, a website or sales order processing systems to name a few, these can all be affected.
We have created a CEO’s Briefing on how to address these integration challenges which you can download by clicking the button below.
CEOs Briefing: Solving Integration Challenges
Integration problems are as old as IT itself. And so are the problems they bring about. When systems don’t talk to each other, it means more mistakes and manual work, and reporting is difficult — or impossible. Download this briefing and learn how to solve these challenges!
