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How private equity is embracing technology

The private equity sector is rapidly evolving with new technologies disrupting traditional processes. Concurrently, new vital roles are emerging to navigate firms through the transformation.

Many private equity groups are adjusting their focus from operations to investment teams with a focus on the competition for deal flow, with big data and analytics beginning to dominant the scene. These new technologies provide multiple advantages when it comes to deal sourcing and conducting due diligence.

Baily Montagu takes a look at how the private equity industry is embracing these developments.

Embracing Disruption and Big Data

One of the biggest disrupters of recent times is data-driven technology, such as artificial intelligence (AI) and machine learning. Private equity investment decisions have previously been based on a relatively basic analysis of a company’s performance using balance sheets and financial statements. Undertaken by humans, it was a slow and limited process.

Using AI and machine learning, huge amounts of data can be analysed in real time to more thoroughly analyse past data and more accurately predict future performance. Private equity firms can also use this technology to identify key business drivers and better understand how they can improve an investment’s prospects.

This data-driven technology also helps private equity firms forge strong relationships with their portfolio companies by using intelligent customer relationship management (CRM) platforms. An intelligent CRM will initially help identify the most suitable introduction to a prospective portfolio investment and enable both to continually develop a mutually beneficial relationship.

Adapting Digitisation

As more and more data-driven technology is adopted by private equity groups, broader knowledge of digitisation has become a high priority for many forward-thinking investors.

Modern private equity investors not only need to be digitally literate but also know how to implement data-driven and automation technologies such as AI, Internet of Things and Robotic Process Automation within their portfolio companies. Such implementation is an impossible task without first understanding digitisation, which will also help prevent private equity groups from suddenly finding themselves left too far behind to catch-up.

The expertise to digitise and integrate new data-driven technologies may well be already present in some prospective portfolio companies, but investors must be able to introduce it themselves in order to maximise the potential of those prospects yet to make the transformation.

New Roles for a New Age

The need for digitisation alongside the disruptive data-driven technologies is giving rise to new roles within the private equity sector. There is a variety of new data analysts and data architects alongside cloud specialists, digital product managers, database administrators and system integrators. However, perhaps the most important role in this new age of technology is the Chief Digital Officer (CDO).

While investors need knowledge for themselves and their own evaluations of a portfolio company, the initial implementation as well as the ongoing training and monitoring requires a daily hands-on approach that many investors are not in a position to provide. This is how CDOs are becoming essential to any private equity group seeking to digitise their portfolio companies as well as take advantage of the latest data-driven technologies.

A CDO usually has multiple responsibilities and will oversee the projects undertaken by the analysts and architects, but they will also be tasked with evaluating investments in new technologies and devising and monitoring a company’s cybersecurity strategy.

All this technology is offering private equity many new and exciting opportunities, but only to those who embrace it.

Stefan Hart

Author

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