How Systems & 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/tech is 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/tech 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 tech to make fundamental improvements to your mid-market business.

Freeman Clarke is the largest and most experienced team of part-time, or fractional, IT leaders. We work exclusively with organizations looking to use IT to grow their business. For an informal conversation, contact us and we’ll be in touch.