The Holy Grail for private equity is to find a business you can grow rapidly and profitably. One area of growth that private equity (and everyone else) cannot ignore is the power of Digital Transformation.
Actually, a superhero doomsday setting isn’t that far off the mark. It’s a fact that a huge number of businesses are not prepared for the digital age. They don’t have a digital strategy and they are going to begin to fail more frequently, more rapidly as all aspects of digital marketing specialist and digital buying continue to be felt.
So what does that mean for private equity firms? First and foremost, there are going to be some pretty good deals out there soon, but only for firms that understand the power of Digital Transformation. Instead of just growing value through acquisition and better management, prudent PE firms can target companies that can’t figure out how to transform their business model or processes to cut costs, gain more market share, and profit through digitization. There are number of digital marketing companies you can seek help from, Turning around these companies might be as simple as instituting a CRM system, or putting up a truly strategic transactional website to attract and convert more visitors. These are going to be the Private Equity Rockstars in the coming years.
This is an area that Digital Transformation
This is an area that Digital Transformation excels at — transforming a company through vision. And in this case the vision is not a core principle — but the idea that the core principle needs to be transformed. Digital Transformation is about taking a company and growing profitability while you move the company into the 21st century. And that is exciting! Not only does it mean employees enjoy their work more as you eliminate duplication and admin work, but it conveys to everyone a new sense of purpose. Digital Transformation is really about changing HOW a company operates and not necessarily WHAT it does. S. Steel can’t digitally transform.
The PE firm that starts Digitally Transforming now is going to be way ahead of the curve. . Think of the best companies on earth and you know what their vision is. Apple’s vision is to provide their customers with endless tech toys that all link together seamlessly. Netflix is all about bringing you endless entertainment for a monthly fee — and smashing the cable companies along the way. U.S. Steel is — steel. Nothing fires up a company more than knowing who it is and where it’s going.
“Private equity firms should start thinking about digitalisation at the investment due diligence stage where they can ask critical questions.”
Think about that from a private equity setting. Supercharge a portfolio by transforming companies from within utilizing best practices for the 21st century — make them more profitable, revitalize entire cultures — maybe a Digital Transformation is a little like a super-hero movie! If you want to build ROI, create efficiencies, and drive a successful portfolio, you have to know how to implement a Digital Transformation.
Four steps to digitally-driven value creation
It is clear that private equity firms face increasing pressure from investors who demand good returns, more information, greater transparency, and improved data granularity. Digitalisation can alleviate this pressure. To successfully implement a digitally driven value creation strategy, private equity firms should:
- Hire professionals with technology backgrounds. These key employees should be able to advise the management team on the purchase or internal development of new hardware and software, and on hiring data scientists with the necessary skills.
- Build data management capabilities internally. The process of collecting, aggregating, structuring, conditioning, safeguarding, and using large amounts of data is complex. Portfolio companies need to be advised on how to acquire data management skills or access them through third-party technology providers.
- Be pragmatic. Target a significant technology shortcoming that could represent a major source of value creation.
- Be transparent. Communicate progress on digitalization efforts internally and publicly in annual reports, investor conferences, and other avenues.