Doing the basics well ensures growth for private equity owners

05 April 2023 Consultancy.uk 4 min. read

With merger and acquisition values having ballooned in recent months, due diligence has become even more crucial to private equity firms looking to see quick results from their purchases. According to James Prebble, CEO and Co-Founder at Palladium, assessing current capabilities and future potential needs to take place at the earliest stage of the deal process.

Technology permeates every aspect of business today, making technology and product due diligence a key aspect of any potential deal. It is essential that private equity owners have a clear understanding of the technological capabilities and potential liabilities. This includes building a picture of how technology enables and underpins a business.

When it comes to due diligence, private equity owners need to be sure that their technology has had the proper investment, it’s resilient and most importantly, fit for purpose. Identifying opportunities for technology-led change is crucial in the support of business growth plans. Understanding the digital opportunities and risks helps private equity owners to build future digital strategies, products and services that not only accelerates growth, but adds long-term value.

James Prebble, CEO, Palladium

The last thing a business needs is to be operating on complex code that has been hastily put together. Product delivery is incredibly important when it comes to tech value creation, which is why private equity owners that have a product development mindset and use modern development technologies, such as Low-code/No-code (LCNC), are more likely to be able to scale up and down at pace without significant tech investment.

Getting swept up by new, innovative technologies can be a costly mistake and private equity owners should refrain from investing in tech programmes without careful consideration of the benefits both in the short-term and the value this provides at exit. Businesses that do the basics well, such as having a robust CRM system, solid analytics, robust technology and development processes, strong development cadence and a product are likely to be successful.

Having a well-defined roadmap should take precedence over using technology for technologies sake. Savvy private equity owners will have realised that there is value in having a thought-out plan that allows for expenditure control through a set of specific milestones.

Ensure a business case for investment

Before investing in technology private equity owners need to make sure that it enables the business to do something that it couldn’t do before and that the investment adds value. Businesses need to ask themselves: will investment enable growth? Does it enhance efficiency? Or will it create some sort of market-leading capability?

By determining the business case for investment in technology, putting milestones in place and actually hitting these milestones should ensure money is well spent. The key factor here is not to keep investing in something if it is falling behind these milestones.

It is imperative that private equity firms and the companies that they own collect and store data in a way that maximises value. Major changes to online privacy laws and the way in which businesses use cookies will have a massive impact on any business using digital marketing. Private equity owners need to ensure that they have the right data analytics structure in place to store information about its customers that can be used in personal advertising. This issue is a significant one, both from a legal and business standpoint and needs to be prioritised at board level.

There has been a trend since the pandemic of companies investing in and implementing new technology quickly. Lockdown saw companies have to find and deliver new technology just to keep the day-to-day business running. This has led to a newfound confidence in ‘new’ technology with many of the previous considerations or barriers being reduced or taken down completely. Whilst this can be considered, overall, a good thing, it has also meant that some businesses are making rash decisions about the short and long terms impact of a new solution, something private equity owners cannot afford to do.

Ensuring that a business is implementing the right technology at the right time and not jumping on tech trends and bandwagons is not only the safer route for private equity owners, but also the route that makes the most strategic sense. Nine times out of ten the product a private equity owner needs, is already on the market and can be adjusted to suit varying business needs. As far as private equity is concerned the most significant trend is using what has already been built. Ultimately, this means businesses will spend less and deploy more quickly with better support across platforms which means better results.

Founded in 2015, Palladium is a London-headquartered consultancy, specialising in digital advisory services. The firm works to empower private equity clients to make sound investment decisions with digital due diligence, while supporting portfolio companies through necessary digital transformation to accelerate business performance and realise higher exit valuations.