The New Private Equity: Creating Value Through Digital Transformation

The New Private Equity: Creating Value Through Digital Transformation

Sep 13, 2021 | Editorial Team

Digital transformation refers to digital technologies to modify or create new business processes, culture, or customer experiences that meet changing market and business requirements. Digital transformation is a way to reimagine business in the digital age.

This transcends traditional roles such as sales, marketing, customer service, and marketing & focuses on what you do with customers. With digital technology at our disposal, we can reimagine how we do business and interact with customers.

Small businesses just starting need to invest in business processes; you can't just set them up and then transform them later. Your organization can be future-proofed from the beginning. It is not sustainable to build a 21st-century business using stickies and handwritten notes. Instead, you can think, plan, and build digitally to be flexible, agile, and ready for growth.

Many companies take stock of their digital transformation efforts and ask themselves if they are doing the right thing.

Why Digital Transformation, and Why Now?

Modern PE firms understand that Digital Transformation is more important than money.

  • There is a lot of capital out there that seeks returns.

Private equity firms have raised huge amounts of capital in the past three years. Globally, PE firms manage assets worth more than US$3.8T. This is more than twice the amount they managed after the global financial crisis (GFC). PE funds currently hold more than US$1.4T of immediately deployable funds. This is before you add credit, infrastructure, growth capital, etc. The total amount of PE capital that can be deployed is more than US$2.6T.

  • A down period could be very long.

Operating partners are a common feature of PE firms. They help portfolio companies deal with operational disruption and economic instability. When evaluating where and how to do this, keep in mind that if companies compete with your portfolio's fall, their customers will seek out new vendors who are fully digital-ready.

The window of opportunity for PE firms that can transform with agility is now, at 3-4X.

  • COVID-19 transforms global supply chains, creating new challenges and opportunities.

Some PE portfolio companies face the Covid-19 crisis, which is also exacerbated by the current economic crisis. They are tempted to save cash, postpone capital spending or draw down their credit lines to get through this crisis.

However, as the old saying is, "Never waste a crisis", the opportunity to fundamentally reset marketplaces is now. Digital Transformation is a pressing need due to the rapid pace of change in global supply chains. Some companies may find that some degree of Digital Transformation is necessary to reduce the risk of failure. Companies willing to invest to be category winners can reap the benefits of disruptions in the market.

  • Why PE firms must digitally transform to compete

If you are looking to maximize the return on your investments, there is one key hypothesis: embrace Digital Transformation.

Remember these three things:

  • IT is more than just cost-cutting. It can also help to increase topline revenue.
  • How can you make your business more digital as it shifts in the wake of COVID-19?
  • BPO expertise can be viewed as a core value driver. You can generate large returns if you invest in the right structure and the right improvements.

Private Equity is a combination of the best of traditional practices and the power of Digital Transformation.

PE firms know "what works" and are experts at it. You will learn how to turn around portfolio companies and ensure maximum exit.

You are already familiar with how to handle unexpected risks and unfavorable business environments. The routine practices of simplifying complexity over many years, creating smarter connections between business units and exiting non-core product lines, and streamlining and simplifying reporting policies and procedures will only take you so far.

There is only so much low-hanging fruit, and everyone knows where it is and how it can be harvested. The best performing PE companies push to be more creative; make sure you are one of the leading contenders.

  • Steps for Digital Transformation in PE

Digital transformation in PE: The Three Golden Steps for Private Equity Professionals

  • Step 1: Focus on the future, not the past

A company can be shrunk to profitability but not to greatness.

You often acquire companies that have been in financial distress for a while. What is the last time you and your portfolio thought about the future beyond next month's payroll?

  • DO
  • Reinvent yourself for the future
  • Have a solid cloud platform strategy in place.
  • Your entire technology infrastructure should be mapped, both internally and with partners
  • You must aggressively eliminate "inherited inefficiencies"
  • Reduce non-core IT assets, back-office operations and other assets to make your business more asset-friendly
  • You might consider moving to online
  • To expand the reach of your portfolio company and serve clients around the world, create digital marketplaces online
  • Customers can create new buying experiences using AR/VR technology
  • Consider new digital-based global supply chains as a possibility
  • You can create value through IOT and sensor data analytics
  • Make money in passive-IP
  • Look for investment opportunities in industries with good fundamentals, but no innovation in a while.
  • DON'T
  • Optimize for the past
  • Keep holding on to your legacy assets.
  • Consider the tech infrastructure as "only the plumbing".
  • Forget that merging inefficient companies creates an inefficient web of tech and processes.
  • Neglect the substantial, recurring cost savings that are often hidden in the shadows
  • Only existing sales channels can generate significant revenue
  • Assume that the company is unable to expand its total market.
  • Assume that buyers will continue to buy as they did prior to the pandemic
  • Negotiate more aggressive terms with suppliers in the supply chain
  • Overlook the important data assets that company might create during its business day, even though they may not be captured right now
  • Hidden assets that might be worth more to someone else should not be ignored
  • Miss out on these undervalued "ugly ducklings".
  • Step II: Concentrate on the Big Three:

Technology Modernization, Business Operations Optimization, and Sale & Leaseback of Non-Core Assets

Modern PE companies are like traditional PE companies and remain laser-focused in their pursuit of money. These three key areas are the best places to drive revenue or reduce costs in today's enterprise. It is possible to maximize throughput and efficiency while keeping costs down by managing centralized and automated digital shared service organizations that are right-shored to improve internal and external customer experience.

Artificial Intelligence and Automation can be used in transformative processes to reduce costs and increase productivity many times. However, customers in AI and Automation face the greatest challenges. They need to know what technologies can do for their business, overcome adoption hurdles, and achieve nonlinear growth in speed and scale.


Your organization can modernize its digital operations by leveraging AI, Hyper Automation, and Process Re-engineering. This can impact Cost Savings, Staff Reductions, Customer Satisfaction, Improved Customer Satisfaction, and Reduced Customer Churn.

  • Technology Modernization

Software is becoming more ubiquitous, so companies need to see technology as a key business driver. An enterprise can gain a competitive edge by adopting a design-led approach to modernization.

You can also look into platforms that allow low-code/no-code features to seamlessly enable business users to access technology.

This will enable your portfolio companies to increase agility and financial performance by being able to quickly ramp up or down as needed.


Digital transformation has brought about improvements in deal-making and operational efficiency in portfolio companies of private equity firms. These leading firms, for example, have integrated sophisticated data analytics into the pre-due diligence process to speed up deal closings and improve deal pricing accuracy. D&A is also used to do scenario and growth analysis on financials. This allows them to create growth models and plan for future growth.

Firms have also used innovative technology to analyze social media signals and market data to identify investment opportunities. Private equity firms also offer virtual data rooms that allow limited partners to access real-time data, analyze scenarios, and check their risk positions. These platforms can feed data into models that analyze both market and internal data to generate alpha and mitigate risk.

Many private equity firms have used robotic process automation to automate routine back- and mid-office manual operations. This could include fund accounting, CRM, trade, settlements, and fund accounting. Technology has made it easier to address compliance and risk issues, regardless of where they are located. This technology has also been a benefit to leading private equity firms. This technology can make client onboarding easier and more user-friendly, as well as streamline regulatory reporting. Private equity firms are also developing digital capabilities in-house to improve the "digital health" of companies they invest in.

This model allows them to go beyond just providing capital but also become strategic partners and affirmatively interact with their portfolio companies to increase value creation.

  • Step III: Partner with people who understand PE

Stay on the lookout to partner based on structured contracts with firms having in depth knowledge of digital transformation in PE & changes in the private equity deal structure.

This will ensure constant support and guidance in digital transformation services to help accelerate exits from the investment with desirable multiples.

  • The Next Steps:
  • Leaders must be change agents and help create a culture shift in their organization to see client-facing technology not as a support function but as an enabler for rich client experiences.
  • Digital Transformation creates value quickly, reliably, and effectively.
  • Recognizes digital shift from the peripheral to the core.
  • Know the Dos and Don'ts of Digital Transformation in PE.
  • It's not about changing technology; it's evaluating cost structures.
  • Modernizing client-facing technology must be a priority for organizations. Innovative technologies such as cloud and artificial intelligence are required to anticipate customer needs and make the relevant products and services available.
  • Be bold and innovative in your technology vision. The organizations that created a flexible and scalable client-facing technology environment remained relevant and trusted their customers.

Stay Updated!

Get the latest in Private Equity with USPEC Newsletter straight to your inbox.

Sign Up