After decades of being considered just a cost center, IT is now seen as a value creator. The right use of technology, for example, can drive data-driven insights for competitive advantage.
That’s why it’s important to start identifying opportunities early in the private equity (PE) deal process. The sooner you can uncover ways to gain efficiencies or drive innovation — coupled with the faster you can develop an IT roadmap — the more rapid the value creation process can be.
We often see PE firms set out a tech roadmap for the first 100 days. While that’s certainly critical, we’re going to boldly state that opportunities should be identified much sooner.
Based on RKON’s work with the most advanced PE firms, we have had success maximizing value starting on Day 1. It might include quick wins that we have identified during the due diligence process. In some cases, we have exploited “low-hanging fruit” opportunities — easy cloud migrations, for example. In other cases, our experts have developed long-term plans to modernize or transform software engineering processes. And often, it’s a mix of both.
No matter the goals, value derived from technology should never be a check-the-box exercise. That’s because every target company is different; even organizations in the same industry will have unique resources and processes.
For example, some have small or lean IT teams, while others have well-oiled software development teams that are well accustomed with DevOps methodologies. They — and the PE firm — may also have individualized business objectives, such as high velocity with low transformation or product innovation with IT modernization.
It really depends on the maturity of the target company and their challenges. They may have legacy processes or solutions that are inefficient and require optimization and automation. Or they might be using mature development processes, but are struggling to scale. Another common scenario we see is the lack of integration among tech solutions.
Considerations and next steps
Due to the many variables inherent in IT environments, we believe the best path to value creation includes an early start to identify opportunities.
We recommend an assessment during due diligence that includes an audit of people, processes, and technology. Our group — whose expertise includes everything from cybersecurity and DevOps to cloud migrations and help-desk support — examines the makeup of the target company’s IT team, including capabilities and skillsets. RKON also considers the maturity level of the organization’s tech implementations and workflows to see where opportunities exist for transformation and optimization.
From this audit, we begin to shape the tech roadmap based on the PE firm’s needs for quick wins in the first 100 days and/or long-term value.
Based on the ownership cycle, we will identify:
- Areas where it’s not necessary to reinvent the wheel. This might include software-as-a-service implementations, off-the-shelf product deployments, or business process automations — in other words, factors that influence cost optimization and efficiencies.
- Incremental projects for value benefits. In these cases, RKON considers how scalability, portability, and resiliency advantages can be gained through IT modernization such as cloud migration initiatives. For example, a cloud-based data warehouse can cost-effectively help deliver on the goal of being data-driven for innovation. Alternatively, some organizations will gain more and quicker value by implementing a third-party IT model for software development.
- The need for change management. Regardless of being involved in a PE deal, most companies have to confront cultural reasons for IT transformation or modernization. Our goal is to create value through change management, rather than implement solutions that are counter-productive to everyone’s interests.
Technology implementations and software transformation can make all the difference in private equity deals. No matter your goals for value creation, RKON has decades of expertise to confidently offer end-to-end service in PE transactions. But the sooner we can get involved, the faster we can help generate that value.
RKON’s IT Advisory Services covers the gamut — from due diligence assessments and 100 day plans to IT roadmap creation and support. Get more info here.
