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Base Theory
At a time when private equity is paying record high prices to acquire companies, the prospect of hitting your return targets is becoming more difficult. The traditional playbook for how you go about executing on your visions and missions at your portfolio companies is most likely not going to get you where you need to be from a return standpoint. There are other levers that you are going to need to pull to get to where you need to get to. As I looked around the industry, as I talked to people, as I looked at some of the work that we do here, what became apparent is that the private equity industry is wholly underrating the effect of technology both on companies that they’re looking to acquire and ones that they already own.
Technology is at the base of every single company that runs today. Whether it’s some packaged software, ERP, CRM, whatever it is. Many companies are leveraging technology as a competitive advantage. To not be completely bought into how technology strategically can be of use in an acquisition or at a portfolio company, is really a place where I see private equity falling down right now. Many people that I talk to still just treat technology, if there’s a list of things that you need to get through when you’re looking at an acquisition, if there’s a plan once you acquire a company, the technology piece of those plans, of those diligences, is a lower priority item.
In a world where technology runs these companies, it’s got to be moved up that ladder. And there are so many opportunities for you to take technology and leverage it to improve revenue, to better operations, to make happier employees, to make happier customers. Right now, I just don’t see enough people in the industry focused on that. This presents an opportunity to get a better understanding of what it is that you can do with technology at the companies that you’re acquiring or that you own. Don’t make excuses around, well it’s a manufacturing company, or well it’s distribution, or well it’s whatever. And not saying, well we like to be hands off with our management team and we let the IT group run with things and we’ll see how it goes. No, you can’t. You can’t. Not when there’s millions of dollars at stake. You should, you need to have a better understanding of the effects of these decisions on the portfolio companies and how they will affect your outcome.
What’s Holding You Back
Why aren’t more of you really digging into the technology? I don’t know. I don’t know why. Technology is hard, I will tell you that. I’ve been in it for 20 years. It is hard. It’s moving fast. There are so many things to know. It’s impossible to know everything. But even to get a little bit of a better understanding, a deeper understanding of what we’re talking about here, I think will help you immensely when you evaluate companies, when you evaluate the ones you own, when you consider the ways in which you can leverage technology to improve your outcomes. Knowing more will help. Passing the buck as many firms do today to a third-party firm to do due diligence, as an example, and just asking for a check the box, red, green, yellow report to come back, it’s not enough., especially not when technology is running these companies. There’s got to be more to it. It’s got to be a more important priority for you when you’re acquiring companies and when the companies are then being run.
Shifting Your Tech Mentality
It’s really a mentality shift. I’m looking to help folks shift the way they think about how technology can help them or how technology plays a part in the acquisition. And how it plays a part in getting you the results that you want. We’ll talk to people about building custom software. We’ll talk about enterprise software off-the-shelf packages. We’ll talk about evaluating people, the people running the technology at your firms. We’ll talk about the software development life-cycle. We can talk about testing. We’ll cover a lot of different topics here. We’ll bring in industry experts. We’ll talk to folks like you that are executing. It should be good, and looking forward to bringing value to you all, helping you better understand technology and how and why it will have an immense impact on your investments going forward.
