Considerations for value creation in private equity
There are important considerations PE firms should keep in mind to lower the impact of technical debt and improve EBITDA and overall valuation by the end of the investment horizon.
Start with the basics
Few mid-market firms have an IT infrastructure robust enough to meet the demands of today's cyber landscape. In fact, only 50% of small and medium-sized businesses (SMBs) have a cybersecurity plan in place.1
Start by viewing IT as a value driver and setting the company up for success. Focus first on basics such as cloud and migrating the company to a new operating model. This provides a strong foundation to improve operations in the future through advanced security features, disaster recovery planning, and overall process improvement.
To outsource or to stay in-house?
The in-house talent and infrastructure of many companies may not be up to the task of today's demands. Determining what really needs to be in-house and then outsourcing non-business critical IT functions (e.g., IT helpdesks) to a Managed Services Provider (MSP) can significantly lower business risk and possibly overall costs, especially if a company has multiple locations that need to be serviced.
Leverage data analytics
Data analytics is an excellent example of how IT can drive value. Analytics tools are becoming increasingly accessible to SMBs and can create value across all areas of the business, from optimizing the management of raw materials to coordinating the supply chain.
Companies operating in the industrials and manufacturing sectors especially have a lot of room to benefit because they traditionally spend under 2% of revenue on IT as compared to the banking sector, which spends closer to 6% of revenue on IT.
How BDO can help
Through industry professionals with decades of cumulative knowledge, BDO Canada offers a broad range of services that can help private equity firms navigate post-pandemic realities throughout the entire deal lifecycle, from pre-deal and the holding period to post-deal.
To learn more, contact us today:
Adam Brown, National Leader, Management Consulting and Strategy, Value Creation & Analytics Services
Bill Suri, Senior Consultant, Management Consulting
Susan Odle, Technology Investment Advisory Practice Leader, BDO Lixar (now BDO Digital)
1 Alarming Cyber Statistics For Mid-Year 2022 That You Need To Know, Forbes, June 3, 2022.
2 Tech debt: Reclaiming tech equity, McKinsey, October 6, 2020.