People
Is there any greater indicator in the value of digital transformation than when it becomes a priority for PE firms to enable their portfolio companies to go digital? As Javier Espinoza states in the Financial Times article "PE firms consider going digital crucial for their strategy of increasing the value of a company before selling it within a few years of acquisition".
My experience in working with PE firms is they want both very quick results from digital investments and a sustainable process and platform that is viewed as an enduring asset of the portfolio company. As Silpa Varga, the CFO of Apax-owned Authority Brands points out, "A buyer is always going to want to know how we used technology to support the operations of the business." It’s equally important to capture the impact and results of the transformation and the value created. Our experience shows digital transformation can lead to improved valuation and sale often in as little as 12 to 18 months.
I’m a proponent of using public cloud-based platforms, consumed as a service, and integrating them with existing corporate systems to achieve the quickest results. This approach addresses several common issues with digital transformation. First, how to address the complexity associated with legacy systems that every business owns. Secondly, how to justify the initial required investment.
Public cloud-based platforms, with pre-built integration tools, quickly enable the integration with existing systems and allow companies to efficiently extract only the data they need when it’s needed. Additionally, platform costs are aligned with the task they are performing and are sublinear; meaning the more projects you use the solution for, the more profitable it becomes. This is a radical change from years ago when you had to invest significant capital upfront to only use a fraction of the service.
Finally, to ensure the best ROI, PE firms need to carefully select the right portfolio companies to invest in for digital transformation. Bruce Sinclair, the author of The Private Equity Digital Operating Partner, states that “Private equity firms should choose a traditional portfolio company that has done business the same way for decades in an industry that has done business the same way for decades.”
My call to action for you is this: keep it simple. Use existing public platforms for integration, extract only the data aligned with the initial use case, measure results, improve and repeat.
