Private Equity Investments: Five rapid turnarounds to build the business

Private Equity Investments: Five rapid turnarounds to build the business


by
Dave Rogers, a Viadex guest contributor, from Diligent Consultancy

The value of Information Technology Due Diligence

Technology evolves fast and its alignment to business objectives is essential. Successful companies keep pace in a rapidly changing landscape. To a large degree this is a core foundation of where their success comes from, showing that they provide three core pillars of value:
  • They know how to ensure and sustain relevance to their customers
  • They embrace innovation in processes as a key driver of efficiency
  • The ability for investments to scale-up effectively; with the right processes, products, people and partnerships in place

We can assume that when you’re looking at a company to invest in, it has conformed to this model and its business success has been based on such core pillars.

Due to the rapid pace of technology evolution, some of the housekeeping detail that comes with can occasionally get missed along the way. I talked about the ‘devil in the detail’ in my last blog. In this post, the focus is on exploring that detail through a process of technology due diligence to ensure that any business you invest in is in the best shape it can be, at the commencement of the investment lifecycle.

Digging deep
Information Technology due diligence is an essential exercise to ensure that you can sleep at night and that your investors’ trust and investment will be validated, realising potential returns. It enables you to reassure your investors that you have created robust plans for adding value to the investment and minimising business risk – continuously – from initial engagement through to exit.

Robust plans are about improving efficiencies, putting costs under the microscope. The more efficient the business is, and the more intense the process of digging deep to ensure such efficiencies are present or can be introduced to the business, the greater its likelihood of success from the investment standpoint. Embracing such best practice will also drive the continuance of your own track record for trustworthy investment choices and repeated fund cycles.
Five top tips
Five top tips
Based on our experience at Diligent Consultancy in delivering IT services at key stages of an investment within the mid-market for geo-dispersed private equity investments and SMEs, here are the five focus areas we recommend for achieving IT investment life-cycle management, realising business potential:

  • Risk assessment
    The first stage is to eliminate the possibility of surprises coming later down the line. By inference, this is a complex task. The fact that less than robust practices are hidden in the business could surprise you means they are likely to result from areas that may have been overlooked in the past; as the target investment company continued its rapid growth trajectory and associated acquisition of new technologies and/or software, upgrades, or replacements. This is a common IT problem relating more to the complexity of licensing administration than to mismanagement.

    Clarity is king. Yet the path to achieving it is less than clear which is why, once again, so many companies end up with superfluous software licences (unnecessary expenditure that can quite easily run into tens of thousands of pounds) or unintentional illegal use of software – license violation – due to under-licensing (running the risk of vendor fines in the case of a vendor-imposed software audit).

    An immediate priority is to discover existing risks and possible hidden costs, providing clarity on reducing business impact and known cost for critical expenditure

  • Strategic alignment
    Areas for attention identified at the risk assessment stage will feed into defining an IT strategic roadmap and 100-day plan with associated costs. The purpose of this strategy is to align your aggressive organic growth and/or buy and build strategies.

    The key areas to evaluate are:

    • Effective budget management and tender renewals; ensuring ‘value for money’ against market norms.
    • Evidence and quality of strategic IT delivery to executive management and value on a monthly reporting basis.
    • Robustness, scalability and resilience of systems for delivering the planned growth
    • That a digital strategy and the means of measuring its effectiveness are in place
    • That best practice prevails across security and compliance of systems and processes
  • Security
    Understand and resolve challenges around cyber security risks and GDPR
  • Efficient and effective use of data
    Identify business and technology alignment, such as digital transformation to drive business efficiency and productivity.
  • Extending capabilities
    For anyone in the business of private equity, there is no reason why IT should be one of your prime skills, nor is there any particular problem in it not being so. This is a field with an abundance of competent service providers covering every aspect of technology and offering specialist support wherever your immediate and long-term priorities may lie, but finding the right partner(s) is critical
Ongoing refinement and exit preparation

Ongoing refinement and exit preparation

Engaging with an external provider is a delicate task but with the overriding benefit that it enables you to access specialist input on demand and hence cash-flow the expenditure.

Diligent Consultancy have worked with Viadex for many private equity clients and have found them to be highly responsive to and understanding of the needs of their investments. That’s important; finding a partner who is sympathetic to what you set out to achieve and who knows where the urgent fixes need to be undertaken, in parallel with the lifecycle goals of adding and sustaining value before exit.

The role of an external technology partner is to help ensure a return on your technology investment, and make sure that when the time comes the business has a clean bill of health; no red flags, no hidden surprises, no barriers to the successful outcome you had anticipated from the very beginning. Viadex have fulfilled this role time and time again. When the need arises with your next investment, I recommend you take a look.


Dave Rogers is the owner of Diligent Consultancy, a leading IT consultancy company serving the private equity sector in ensuring the valuation, and enhancing the intrinsic value, of investments. Dave Rogers supports Viadex in the delivery of our CIO as a Service.