It’s a new era for private equity firms. Long gone are the days when private equity firms created value primarily through leverage and financial engineering. Today’s successful firms focus on driving value through both bottom-line efficiencies (e.g. sourcing, operational efficiencies, working capital optimization) and revenue-growing initiatives (e.g. sales force effectiveness, cross selling, pricing strategies), all of which are highly dependent on having the right technology and operational processes in place.
This preparation should start during the due diligence phase, and there are significant benefits to risk identification, post-close planning, and ROI impact by combining both information technology (IT) and operational due diligence into one, seamless process.
One assessment, one plan.
IT and operations are intertwined, and it is critical to understand their interdependencies in order to build a viable, sustainable business long after the merger or acquisition is completed. A consolidated team with both operational and IT expertise allows for a deeper penetration and understanding of a company’s critical risks and issues—helping to identify them early in the process, determine the root cause(s) and offer meaningful, practical solutions. A consolidated team also allows you to combine diligence interviews, reduce scope overlap, improve knowledge transfer, and enhance the team’s overall understanding of core business processes.
Additionally, by joining operational and IT due diligence, your diligence report and post-transaction execution plan (100 day, Year 1, Year 2) will be consolidated, streamlined and prioritized—increasing the potential for success of the recommended initiatives and enabling the acquired company to better manage and adapt to change. A combined view also requires fewer assumptions, enabling you to develop a more refined cost and risk estimate and a more defined view of collective milestones, timelines, and key performance indicators.
Increase ROI impact for IT and operational initiatives.
When deficiencies do exist, you likely will need to implement operational and IT initiatives to address them; however, these should never be developed in a vacuum. Information technology and operations are inseparable—operational improvement initiatives typically involve an IT component, and IT initiatives most often have a significant impact on operations. By developing ROI goals for recommended IT and operational initiatives in tandem, you can input these calculations directly into financial models and create a full picture on overall business impact and upside potential.
Maximize upside potential.
Conducting operational and IT due diligence is a critical part of any deal process. Too often, due diligence is performed through independent work streams, which in turn makes aggregating the information and creating a single executable plan more difficult. To achieve the maximum upside potential, you should make sure your team includes the operations and IT expertise not only to identify meaningful business improvements, but also to implement them holistically. By looking at your diligence with a wide lens across operations and technology, you can consolidate initiatives that will deliver sustainable improvements to both your top and bottom lines.
For more information on how West Monroe can help you drive deal value during due diligence, please contact Carl Monje at firstname.lastname@example.org.