How does IT drive value?
Private Equity (PE) ownership of mid-market companies is increasing. Of course, PE houses are driven by valuations and these days IT/technology is at the heart of business value.
There are four 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 organization 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/technology due diligence (DD) is often overlooked or a box-ticking exercise, because traditional providers use lengthy, old-fashioned checklists. These provide limited real value and lack commercial insight (and are often hugely overpriced!).
The basics need to be carefully checked: security, compliance, risks, contracts, people, suppliers and cost and legal exposures need to be assessed and itemised. With mid-sized businesses, 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, for themselves, lock-in and insights.
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 technology execs need to work hand-in-glove.
4. Digital transformation
‘Digital transformation’ is a vague term. For us, it simply means using IT to deliver dramatic improvement for our clients. It’s more than an upgrade or fixing some niggling problems – it means using IT to make a significant change for the better.
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. It’s also a way to make your business run better whilst building value.
To find out more, see our Digital Transformation Knowledge Centre.
