Why private equity firms need to digitally transform to compete
Private equity (PE) firms today need to integrate the latest digital analytics and solutions into their business if they want to succeed in a world that’s becoming increasingly competitive and difficult to navigate.
Having the right digital tools gives PE firms a sort of speed and accuracy that make them agile and helps them produce insights and make decisions quickly and clearly.
In the competitive deal-making space, time is of the essence.
According to KPMG, private equity firms that have jumped on the digital transformation bandwagon have experienced a certain amount of speed and accuracy as a result of a more nimble due-diligence process.
Here’s how they’re using technology to upgrade what’s “business as usual” for them:
Using data and analytics to perform scenario and growth analyses on financials, which enables them to develop growth models and strategically plan for the future growth of the firm as well as newly acquired portfolio companies.
Data capturing and virtual data rooms:
Firms also started capitalizing on innovative technologies to gather and analyze market and social media signals and sentiments in order to learn about unique investment opportunities.
Another use of technology pointed out by KPMG includes the development and implementation of platforms that offer virtual data rooms where limited partners can access data in real time, check risk positions, and do scenarios analysis.
In some cases, the data from those models are fed into models that help the firm integrate internal data and public data from social media, to analyze the change of a company generating alpha (return over the hurdle rate) while keeping risks low.
Robotic Process Automation:
PE firms aren’t afraid to experiment.
The consulting giant says there are examples of PE firms who’ve experimented with robotic process automation to mechanize routine mid-and-back-office manual operations such as fund accounting, CRM, and trade and settlement matters.
According to Elizabeth Spaulding, Partner, San Francisco, Bain & Company:
The explosion of data, analytics and connectivity has dramatically enhanced PE funds’ ability to assess companies in due diligence and to improve their performance during the holding period. As markets rapidly transform, funds can find as many opportunities as risks if they have developed the ability to handicap change better than the competition.
The fact is, there’s a lot of advantage that going digital can bring to PE firms, so it’s worth getting started now to gain and retain an edge over the competition.
2 December 2022
1 December 2022