At BearingPoint Capital, we work with a wide variety of tech-orientated Private Equity firms on both buy-side and sell-side deals. We have seen lots of different approaches to both managing tech and managing company portfolios. Here are some top insights that we see differentiate the more successful tech-oriented private equity players.
Some of the top-ranked private equity firms will co-ordinate yearly CTO summits that bring together the technology officers from their portfolio companies. This has two main effects: 1. It means that best practice is shared between the companies, which is an effective learning mechanism. 2. The PE firms invite experts in certain interesting areas to address market-driving trends. Examples include big data and analytics, near-shoring, innovation management and other topics. This leads to portfolio-wide improvements in tech.
Routinized technology investors will have certain standards and practices that they expect their companies to maintain. When they buy a new company, they will implement both tech and security reviews to ensure that various checkboxes are ticked when it comes to standards. This is separate from a Due Diligence (DD), though it may build on the snapshot created by a good Tech DD, and usually forms part of a standard onboarding or value creation plan (VCP). Some firms will have the capability to conduct these things in-house. Others can outsource it to a relevant third-party.
Related to point 2, the most advanced technology investors will always do a technology due diligence before buying an asset. Even assets in non-tech focused industries such as recycling can still benefit from streamlining existing corporate IT, playing catch-up on industry trends and picking up digitalization initiatives. Without a technology due diligence you start at a disadvantage when it comes to driving your VCP, because you don’t know where on the map you are. Similarly, most sellers would benefit from a IT VDD before going into the process. This will help identify any critical points of weakness before a process starts, allows you to address (or at least start to address) those issues, and helps prep the management team for any difficult questions going in. In terms of value preservation in a sell-side deal, a tech VDD is an excellent defensive play.
Many of the larger tech investors will have an in-house CTO that both works with the deal teams when looking at new opportunities and works with the operations team that provides support to the portfolio companies. This CTO does not act as a CTO for the portfolio companies, but has a co-ordination role for the private equity firm itself.
For firms that are not large enough to have a CTO in-house, or who feel that the nature of their investments is not tech-heavy enough to warrant one, there are third-party suppliers that can provide CTO-as-a-service.
Finally, some of the most involved tech investors we work with actively look at leveraging technology in new ways across their deal teams as well as their portfolio companies. This includes advanced analytics, industry 4.0 and understanding why some companies are shifting away from cloud back to on-prem. But it also encompasses things that help the internal workings of the PE firm, including the deal teams - most industry watchers will know about EQT Partners's Motherbrain (eqtgroup.com). Without this kind of innovation, less ambitious private equity firms may be left picking up the pieces, rather than driving the best deals.
BearingPoint Capital provides buy- and sell-side services to private equity, family office and corporate clients. Speak to BearingPoint Capital if you would like to know more about any of the above points.