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Private equity and the digital opportunity; how is the sector responding?

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Eton Bridge Partners recently attended the PEI Operating Partners Forum in London, which brought together around 150 operating partners from several different funds. The event provided a platform for the discussion of strategies to realise value and drive growth within the private equity space. One thing was clear; unlocking the value that digital and data can bring is top of the agenda for many private equity funds. In this article, John Smith, Partner in our Transformation, Digital & Technology Executive Search team, shares his key takeaways from the event.

Good quality data must be the foundation

Due diligence of the state of data in potential acquisitions is increasingly vital as data quality plays directly into the potential for digitalisation and future value creation. An organisation that displays data competence and is led by a tech-savvy team is far more attractive to a buyer.

The focus on data is not limited to due diligence pre-deal; far from it. Data is a catalyst for unlocking value at all stages of the private equity cycle from sourcing data for origination and supporting due diligence to extracting commercial value during the hold period and finally being able to market a credible long-term digital strategy on exit.

ML (Machine Learning) and AI (Artificial Intelligence) are creating a huge buzz, but attendees cautioned that the groundwork on data must be done first. For those companies that still have work to do on data quality, the feeling was that processes and people, rather than a one-size-fits-all systems approach, are the way forward.

Finetuning the digital strategy

Getting digital transformation right was another central topic for discussion. There was an impression that many funds still focus on core technology applications such as ERP and CRM, rather than seeing the ‘bigger picture.’ Each fund and portfolio company needs to be crystal clear on where the value creation will come from and what the journey to extract it will be.

Tangible uses for digital are key as they allow companies to set a direction of travel and join the dots. The approach must be holistic – viewing digitalisation as a tech issue silo-style with systems simply put into certain parts of the business is not a long-term game changer.

Ensuring board interaction in digital strategy at portfolio company level is vital. But it’s worth bearing in mind that the impact of tech and digital investment on revenue and EBITDA during the hold period can be relatively small; its real value can come later in positioning the company for future growth and bolstering its attractiveness on exit. Across the board, AI was generating much excitement over its potential to transform in all stages of the investment lifecycle.

Unlocking pricing and market opportunities

A poll of attendees revealed that customer profitability and pricing was the area that ranked highest in terms of extracting value from data. The benefits are obvious; technology can be used to maximise profitability through advanced analytics and the analysis of customer behaviours and market dynamics.

CRMs provide a tool for driving sales, but, as ever, the right processes and people need to be in place to fully maximise the potential gains from real-time insights. The use of algorithms meanwhile to predict demand and monitor pricing across different channels is driving the ability to adjust prices rapidly and so optimise revenue.

PwC’s recent report, Next in private equity: Strategic industry issues in 2023, notes that in an uncertain economic environment, the right tech strategy can be a protective factor. ‘Many (portfolio companies) are starting to see that the intelligent use of data and cloud is becoming the main way companies stay competitive no matter what the market’s issues. PE firms that exploit the immense advantages of the cloud and a digital transformation can find themselves on the winning end of more deals.’

Cyber Security is a value protector, rather than creator

Smaller or founder-led companies can have cyber security weak spots, put that together with the perception that their new private equity owner has deep pockets and you can see why they may be obvious targets for ransomware attacks. Getting the right culture and processes in place rapidly and keeping them under regular review is essential. Interestingly though, attendees noted that a cyber-attack can have a silver lining as it provides an opportunity to show how well you can deal with an actual attack – do it well with action and transparency and it can build customer trust.

In conclusion, data and digital offer vast value creation potential for private equity with opportunities existing at every stage of the investment cycle. With ML and AI gathering pace, both risk and reward will grow exponentially. Emphasising system changes or existing core technology fails to capitalise on what can be achieved here – exploring the horizons and making data, digital and tech a fund-wide, board-level issue brings the greatest chance of success.


Please get in touch with John to continue the conversation.