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Aligning technology for post-close value creation

March 5, 2021 / 3 min read

Private equity firms need to quickly assess the IT environment and develop an IT strategy to capitalize on post-close value creation.

This is one of seven private equity value creation strategies we have compiled into our new guidebook. Download the entire guidebook here.

Once an organization is acquired, how technology is used can change drastically. During the hold period, investors may assimilate an acquisition to an existing platform, build a new platform on the acquired portfolio, or simply seek to double the earnings over a 4-5-year period through organic growth. Each strategy comes with a unique set of risks, needs, and objectives to allow for scalable growth that looks different from pre- to post-acquisition. It’s important to solidify the investment strategy and build an IT strategy and plan that allows for realization of the growth and value creation.

Establishing the IT strategy

IT is an enormous line item for many companies, and there’s often a significant opportunity to achieve operational efficiencies. Once the IT strategy has been established, you can begin to make tactical decisions about necessary improvements and build an actional plan to realize those improvements. Most organizations realize that existing IT resources may not have the experience required to independently improve the technology processes and platform. As such, they find it beneficial to use third-party experienced resources to deliver critical IT functions, including network monitoring, cybersecurity management, application strategy, operations technology, and/or cloud services to provide an elastic environment that expands with business growth.

At times, the best way to achieve efficiencies is by leveraging any existing IT resources — including people, systems, tools, and technologies — from other portfolio companies. Instead of thinking of each acquisition in a vacuum, reevaluate your overall portfolio and identify opportunities to redeploy assets in a way that increases value across the entire group. For example, you may be able to achieve economies-of-scale by standardizing certain processes or resources such as role descriptions or policy manuals.

Key IT considerations to ensure value creation

Organizing the approach

Many organizations initiate business objectives and launch their plan to grow revenue, organically and through acquisition, without first selecting the right "tools for the job." It’s important to get the right foundational IT tools in place at the platform level (e.g. enterprise applications, communications platform, policies & procedures, IT service delivery resources, hardware standards) before executing on numerous add-ons that will either not assimilate or unnecessarily increase business risk. Developing tools like an IT M&A playbook and post-merger integration plan are valuable models to support smoother transition and effective delivery. Additionally, it’s critical to assess the technologies in place and replace them, as required, with applications and assets that best meet the "newco" needs. It’s important to leverage experienced staff or partners in this process. A new ERP could cost $500,000–$1 million as well as 6-12 months of business and technology staff time.

Keeping cybersecurity on the radar

With increases in cybersecurity threats, private equity firms should also consider a high-level review of cybersecurity, regulatory, and compliance needs. Following the deal close, especially in industries that have stringent regulatory and compliance oversight, it’s critical to dive deeper into the acquired company’s cybersecurity:

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