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Private equity has seen significant changes due to constant pandemic pressures, and the changes aren't finished. According to research firm McKinsey, "The pandemic is much more than an epidemiological event; it's a complex of massive disruptions." In the case of private equity (PE) companies, the disruptions could appear in the form of anything from increasing expectations of clients to changing remote work environments. As with other industries that are forced to change as per the demands of COVID-19, there's a growing awareness among private equity C-suites that community-minded initiatives are essential for long-term achievements.
Simply put, a rising tide lifts all boats; however, in an industry driven by collaboration and competition, what do these sea changes be like for CFOs?
A multi-layered PE initiative that begins with new approaches to operationalization and expands to include the creation of best practices shared by all and provides the highest benefit through anonymized data and efficient business spending management. Here's what you should be aware of.
The Harvard Business Review (HBR) reported that the PE industry has to determine their investment "sweet place" to maximize their returns and offer value to their customers. Working on all cylinders, PE firms have become a force to be considered. Indeed the HBR points out the fact that "Private Equity. The word itself remains a source of admiration jealousy and - for the CEOs of many public companies fears." However, in a world that is being flipped upside down due to shifts towards remote work and the rapidly changing market value, Many companies have difficulty finding and maintaining their sweet places. In the current investment norm, companies must figure out ways to think out of the box. It starts with the collective wisdom.
In their most recent PEI speech, " Unlocking the strategic potential of spending," CPO of Coupa Michael van Keulen and WestView Capital General Partner Greg Thomas discussed the value of community insights and the importance of analytics to help firms find key insights, make optimal investments, and implement strategies for sourcing excellence.
The issue? Sourcing intelligence at scale. While many businesses have a good understanding of market trends analysis offered by well-known research firms and have invested significant capital in technologies like CRM (CRM) and enterprise resource planning (ERP) tools, many aren't aware of the benefits of anonymized spending data that is scalable.
Recognizing the importance of procurement as a key element for digital transformation and the digital age, in 2020, WestView Capital made a strategic investment in The Shelby Group.
Businesses can go beyond cost reductions to improve visibility, control risk and boost resilience in the supply chain to boost the bottom line and top-line performance.
When applied at a larger enterprise level, BSI data can help PE firms improve the efficiency of their expenditure management processes required to be successful in the post-pandemic world. This is possible due to three crucial data attributes.
Although markets are expected to recover in the long term, the current forecasts suggest an accelerated decline in PE investment. According to data released by Standard & Poor, more than 35 per cent of North American private equity firms surveyed believe that investment activities will decrease by 25-50 per cent in the next few months. This means that firms need to develop new strategies to remain afloat in the next few months until market gains occur.
This is evident if it occurred recently, Private Equity International (PEI) Operating Partners Forum Virtual Experience 2020. Live-streamed on December 1st & 2nd of 2020, the forum was focused specifically on "plans and actions to take at an important time in the history of mankind to address the current economic downturn and to rethink strategies to increase growth using technology." The forum featured a myriad of sessions that covered issues ranging from technology due diligence to sophisticated analysis and activating digital leaders and leaders; the PEI presentation clarified that private equity firms need to find new ways to address the challenges of the market.
Practically, the most effective recommendations include:
The next step in achieving equilibrium in private equity? Common ground. It has always been difficult for private equity firms due to the fierce competition in the investment market. Finding and securing the key stakes in both public and private companies before competition is the basis for operational performance. But the current economic climate opens the possibility of "coopetition", which is an acronym for "cooperation" as well as "competition", which aids all businesses in achieving success.
In actual practice, this means establishing more standardized procedures and policies that will benefit the whole industry. The most common ground conditions are:
The character of private equity investments is dependent heavily on competitiveness -- businesses are always seeking to attract the best people, negotiate the most profit and also be the first to identify the financial "sweet spots". Pandemics have increased the necessity for a model of the market which is trending toward collaboration.
Community development can be a means for businesses to consider the advantages of cooperation. Models, best practices, and business intelligence initiatives can help PE firms make the best use of the resources they have at their available. This shift to cooperation isn't just about levelling the playing field in the immediate vicinity but also provides the chance for companies to be different from the rest by providing service, specificity and market knowledge.
Utilizing the potential in Community Intelligence on cloud platforms, private equity firms can progress towards cooperative efforts while simultaneously setting up their own companies to be successful.
Pressure drives progress. While it can be uncomfortable, the most effective way to move forward for private equity firms is to unite. When the pandemic pressures finally diminish, these resilient companies will be better prepared to gain a larger and lasting market share.