Due diligence is a big part of the dealmaking process. As part of its own process, one private equity firm believes it has found a market that is both under-penetrated and poised for disruption.

EQT is looking to invest in technology firms that are meeting increasing demand for services that digitize and streamline essential finance and business functions. Within the technology umbrella, the firm has honed in on technology, technology-enabled services and healthcare tech. Within those spaces, the firm has identified investment in office-of-the-CFO payment technology as a subsector ready for disruption.   

For example, in final quarter of 2022, EQT acquired BTRS Holdings Inc. (Billtrust), with its EQT X fund in an all-cash transaction valuing $1.7 billion. Billtrust is a provider of cloud-based software and payment processing services aiming to simplify and automate B2B commerce. The company automates complex and traditionally manual processes around credit decisions and monitoring, online ordering, invoicing, payments and remittance capture, cash application and collections.

Arvindh Kumar, a partner and co-head of the technology sector team with EQT, tells Mergers and Acquisitions, “I’d say [automated B2B commerce] is a very under-penetrated market, especially in business-to-business payments. Over 45 percent of U.S. businesses are still paying each other by check, which is crazy.”

Kumar says that the firm conducted extensive primary research within the wide-reaching population of CFOs within its portfolio. The firm worked to understand how CFOs and their departments think, what the pain points are, and what technology they have and have not adopted. Additionally, the firm benefits from its global reach across nearly 25 countries. 

“We saw that, unlike most areas, the U.S. is behind on business-to-business payments,” says Kumar. “I lived in Sweden for six months. There, the entire business community and consumer community is electronic. Everyone just pays each other electronically in most of Europe. In the U.S., for some reason, despite how forward we are technologically we’re very behind on paying each other’s business.”

Kumar recognizes the trend is a slow-moving one, as adoption takes time, but the firm feels confident that it is not going to go backwards. Kumar says that the industry benefits from a three tailwinds that are pushing offices of the CFO toward technological transformation of the payments process.

First, the effects of Covid and the hybrid work environment are still bearing influence. 

“You can’t really mail around paper checks as efficiently or easily if everyone’s at home and there’s an entire accounts receivable department not in the office,” he says. “That’s not very efficient. Electronic transmission is much better, faster, and more secure.”

Second, the business complexity of firms is going up not down. During a period of recession, a firm’s credit risk increases. The risk of not being paid goes up. As a result, the benefit of faster collection increases, which can be solved by the removal of paper checks and the implementation of payment technology, Kumar says.

The third tailwind identified by Kumar is as interest rates rise, the cost of not getting paid rises as well. 

“The macro, the inflation and recessionary side make the need for electronic payments even higher,” says Kumar.

Reach Kumar at [email protected].

Will the U.S. ever emulate Europe in digital payments? What’s your view? Let me know at [email protected].

Cole Lipsky