How private equity can define a business strategy for a digital world

GPs should be using smarter technologies to boost the breadth of their understanding around a company’s digital maturity and readiness. This can occur upstream in origination and due diligence, in which an asset’s strengths and weaknesses are evaluated through a digital “lens.” PE firms have increasingly come to appreciate that the right technologies can provide more ways to probe the quality of a potential acquisition whose competitive positioning is increasingly influenced both directly and peripherally by the digital landscape.

For tech-based organizations that may not have any traditional profit or revenue and forecast estimates, digital readiness is usually not an issue. In such instances, diligence can uncover the underlying structure, product development and R&D roadmap of a company, as well as answer questions around talent — particularly important if investors view an organization as a talent-based opportunity. This can also generate questions around intellectual property and patents.

Predictive analytics can help PE firms to use data more effectively, removing some of the human inconsistences of a manual methodology. By using machine learning to create a scoring algorithm for potential deals, GPs can more accurately quantify the technological maturity of each opportunity and reduce some of the manual effort associated with managing “shadow portfolios” of potentially transactable assets.

In addition, a more robust digital readiness assessment (DRA) post-investment empowers portfolio company executives to benchmark a company’s maturity in areas such as supply chain, marketing, talent and risk. This broad survey-based assessment benchmarks seven focus areas against a peer group, provides comparative insights from across the portfolio and identifies priority areas of focus. Such an analysis can build organizational alignment around digital and identify the appropriate talent mix that can execute the digital strategy.