Reality continues to be challenging for private equity. Bain & Co. highlights that continued macroeconomic uncertainty kept investment, exits, and fundraising limping for the last semester of 2022. However, a more positive scenario is emerging. A survey conducted by EY showed that 67% of investors surveyed estimated activity to accelerate in the next six months.
Despite the optimism, the reality is very complex. The global macroeconomic scenario is struggling to recover. Last October, the International Monetary Fund warned that expected growth for 2024 will be 2.9%, one-tenth of a percent less than the 3% recorded in 2023 and well below the historical average of 3.8%. At the same time, armed conflicts are flaring up in key parts of the world and the potential disruption of supply chains for key goods continues to loom on the horizon.
What are the keys for companies to consider to remain attractive in the eyes of investors? To begin with, keep the focus on two words: digital transformation.
The stars of the market
No wonder technology-based companies continue to be the stars of the PE world. EY´s report indicates that technology was the sector accounting for 26% of activity, and other segments showed increased activity (healthcare, for example, accounted for 10% of private equity investment, up from 6%) precisely on tech-led value creation.
Not only that, just as high inflation hits markets such as manufacturing, which tend to suffer from rising input prices, the technology industry can even use the tailwind to reappraise its products and services without higher costs.
Beyond industries and economic sectors, in recent years, technology has proven to be a beacon of resilience for companies.
A beacon of resilience
Indeed, the cloud-enabled the continuous operation of businesses regardless of context, thanks to ubiquitous and secure access to data and applications. Artificial intelligence and data analytics have also made it possible to anticipate scenarios, predict behavioral patterns, and take preventive actions to adapt to rapidly changing contexts.
All this, with a data-focused approach. Companies that manage to leverage the enormous amount of data they have accumulated throughout their history, especially those that have been in the market for many years, have the opportunity to develop accurate proposals for their consumers, improve the experience of their users, employees, and customers, enhance their end-to-end processes, reduce costs and gain efficiencies in each task performed.
And, of course, the wonderful ability to deliver the exact information needed, at the right time, to optimize performance. Data-driven companies, where all decisions are guided by data, can manage their numbers far beyond what is visible on the surface.
Beyond reducing costs
Digital transformation is also key to creating value and making the organization more efficient.
For example, it allows integrating the supply chain end-to-end to optimize logistics, promote ESG agendas (another of the big investor magnets), guarantee on-time deliveries (thus avoiding financial and reputational costs), and manage a broader portfolio of suppliers and distributors, to replace them efficiently if needed.
Talent focus is also important. Automation makes it possible to eliminate numerous manual, repetitive, and very low value-added tasks and to refocus human talent on higher value-added activities, which in turn improves recruitment and retention levels, two of the greatest challenges facing recruiters in times of shortage of qualified personnel.
The challenges are manifold. But at a time when, after four quarters of slowdown, investors need to begin to clear their portfolios and move forward with exits, having a healthy digital foundation is a key differentiating factor for navigating a world in which, it seems, at least for a while, uncertainties will still prevail.