The macroeconomic outlook remains challenging: the global recession continues unabated, growth will remain low in 2024 (2.9% according to the IMF) and international conflicts such as the war in Ukraine add tension to the equation. At the same time, the business context is accelerating, undergoing new technological disruptions such as artificial intelligence and growing competitiveness.
Against this backdrop, PE (private equity) needs, relentlessly and throughout the life cycle of each deal, to maximize return on investment (ROI) and reduce risks.
But there is always a first step to be taken and in the specific case of private equity, which has just gone through its momentum, it is basically to generate the right ROI expectations. Then comes the most challenging part: effectively accelerating the return.
From the cog to the engine
The great ally to achieve this result? Digital technologies, of course. Considered some time ago as just another cog in the complex machinery of organizations, today they are consolidating as the real engine of operation and growth.
As a reference, a study conducted by a major consulting firm in Europe found that 99% of respondents intended to increase their investments in digitization for the next twelve months because they considered it to be one of the main drivers of value creation, with special emphasis on data analysis, a segment to which 78% said that they intended to allocate money.
This is not a minor issue: data analytics plays a key role in valuing companies, performing due diligence, and even identifying attractive target companies.
Due diligence leveraging an intelligent data strategy provides a comprehensive and highly accurate view of a company’s potential, growth opportunities, and weaknesses.
When the acquisition has already been made, the alignment stage begins: how the business strategy is heading in the same direction as the thesis at the time of the investment.
Again, digital transformation plays a key role in optimizing processes (or even implementing improved processes from scratch), driving operational efficiency, reducing costs or generating new revenue streams.
Moving forward on application modernization allows us to break the obstacles often presented by legacy systems and scale the organization towards digital business models, with innovative products, services, and solutions to reach new consumers.
Digital decisions during the retention period are critical: on average, the investment horizon usually extends between three and seven years, with a mid-cycle review. Therefore, value creation from initiatives must be meaningful and relatively quick. In this sense, diagnostics must be fast, discovery processes must be highly focused, and the focus must always be on the end result and the impacts that will be seen in the business in the short, and near to medium term.
Automation, the creation of new customer experiences based on artificial intelligence or the optimization of virtual customer service channels are some of the initiatives that meet the requirements described above.
The secret of success
Needless to say, the presence of a technology partner is what makes it possible to understand the innovation scenario, understand the IT landscape of a target company, or move forward with the digital transformation after the acquisition process is complete.
It is that a thorough assessment of the current infrastructure and technology stack is required to define and activate the roadmap to make that company more attractive going forward. Similarly, since data will become a key asset for the company’s success, it is recommended that governance models be implemented to ensure that the data is reliable, robust, and of high quality.
In short, the secret to success for PEs in these fast-paced times is to appeal to getting the most value from data: both in upstream analysis to generate appropriate ROI expectations and in post-acquisition situations to maximize the likelihood of meeting… or even exceeding them.