With increasingly intermediated markets, private equity firms need new playbooks for uncovering the best opportunities. Firms will use advanced analytics and artificial intelligence to enhance deal sourcing and evaluate investment opportunities. Technology can also be used to manage the pipeline of potential deals, as well as to manage the PE firm’s network of relationships.
The pandemic has made the need to embrace digital strategy even more critical to increase the value of businesses at this time and to continue operating seamlessly in today’s environment.
Activating a digital strategy throughout the deal life cycle will increasingly become a core component of the value creation agenda and the key to achieving to higher returns.
With increasingly intermediated markets, firms need new playbooks for uncovering the best opportunities. Firms will use advanced analytics and AI to enhance deal sourcing and evaluate investment opportunities. Technology can also be used to manage the pipeline of potential deals, as well as the PE firm’s network of relationships. Low-value- add activities can be automated, which frees up more time for strategy, trust-building, etc.
Attracting and developing the right people will allow new talent to uncover fresh investment opportunities. And deal origination will expand to include the identification of investment opportunities based on all potential value drivers — not just financial, but also social, environmental and other factors.
Diligence will expand, bringing in the best of the virtual and the physical. New sources of data will identify hidden risks and provide deeper insights into potential opportunities. AI and machine learning will enable robust scenario planning that allows buyers to look at companies from a multitude of angles. Advanced analytics will allow PE firms to better understand a company’s customers, suppliers, partners, and employees.
Tech-enabled diligence will further allow firms to better understand the levers available to create nonfinancial value as well, with the ability to measure the impact of leadership reputation and LTV-related objectives on stakeholders. Digital tools, combined with the skillsets of the new talent entering the industry, will improve the diligence process.
The shift from balance sheet optimization to operational value creation will continue as firms rethink how to create value from investments in innovative ways. Real-time reporting will enable firms to enhance their decision- making about portfolio companies, and they will employ digitally empowered transparent reporting to boost investor confidence.
The PE fund workforce will be optimized and split between in-house capabilities, outsourced and shared services, and human augmentation.
Once again, embedded ESG principles and a firm focus on digital technologies will contribute significantly to value creation. Firms will use AI and cloud solutions to articulate ESG and LTV metrics to both LPs and the public.
Preparation for exit will start sooner and will involve a broader array of potential buyers. Firms must tell a compelling story that makes sense for tomorrow. This is where the refined skillsets of new and existing talent in the industry will play a pivotal role.
They will use predictive analytics instead of Ebitda targets to better plan exit timings. They will reach exit targets sooner by optimizing workforce models to drive value. And they will employ digital capabilities to simplify the transition process of the investment for the buyer.
They will articulate the full range of value creation, highlighting ESG and LTV actions taken to date to maximize valuation; help buyers visualize the way forward; and think more expansively around opportunities to create value.