Digital transformation can drive value creation in private equity

29 August 2018 4 min. read

Digital transformations are seen as the key to addressing a disruptive future by firms across the business spectrum, however they are often overlooked by the private equity sector. According to Johan Werbrouck of consulting firm RGP, digitalisation could yield a major boost in value to private equity firms.

The private equity scene has boomed in recent years. According to the most recent figures from Bain & Company, private equity firms now total around 8,000 globally. On top of this, last year the private equity scene saw buyouts by hit $440 billion. 

Firms typically invest in company with the aim of boosting its performance, through either growth strategy or a rigid operational improvement, before looking to divest for a profit. While business may be bullish at present, however, private equity faces a number of challenges. With the global trend for digitalisation still to show any signs of plateauing, the need of the hour is that private equity firms presently need to assess and evaluate the companies that have a far greater view on value enhancement levers, which are also associated with digitisation right from operational prerequisites to competitive differentiation.

In order to do this, similarly to other industries, private equity firms can benefit a lot from digital themselves, according to Johan Werbrouck, Vice President Private Equity EMEA at consulting firm RGP. Further to this, Werbrouck set out six ways through which digital transformation can drive value for private equity firms.

Johan Werbrouck, Vice President Private Equity EMEA, RGP

He explained, “Across all sales channels and industries, digitisation is ubiquitous. It's presence is all over and it has become an integral part of the business models for every company. It is at a point where it has garnered importance for creating value within the investment horizons of most of the private equity firms. Private equity firms need to grab the opportunity and maintain pace with digitisation in a lot of ways.” 

First, Werbrouck, by leveraging digitisation, private equity firms can go from providing products and services to providing solutions. This is because they can then work to maximise the life time value delivered to the customer with different pricing models. Following on from this, private equity firms can then update their go to market strategy, in order to adapt it from out-dated legacy channels to modernised online and omnichannel offerings. Werbrouck elaborated, “It can either be a gradual shift or a complete transformation of the business model, with as endgame the loyalty of the client base.” 

The third step private equity firms can take is that they can improve customer engagement by going digital and develop way better customer relationships. Following this, private equity digitisation can help private equity firms transform their business model by moving from transactional, physical asset heavy models to annuity models or yield management. According to Werbrouck, this allows private equities to personalise and customise on a larger scale. 

He further stated the fourth step, “By digitising areas of operations such as supplier management, procurement, network optimisation, plant operations, delivery and customer service, private equities can identify the spots where they can enhance efficiency.”

Finally, according to the RGP executive, private equity firms can leverage digitisation to address cyber threats. As cyber threats have become an increasingly prominent issue, with hackers able to divest even the most secure companies of money and information with comparatively little effort, the private equity sector in particular  proactive manner and build trust digitally with their customers by protecting them as well as their own competitive advantage. 

Emphasising the considerable awards at stake, Werbrouck concluded, “In the end, upgrading your digital maturity, drives the exit multiple – premium, besides the impact you get in the EBITDA, double impact.”