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Robotic process automation (RPA) also called Digital Workforce (DWF) software takes the mundane repetitive tasks and automates them to free up human workforce for more fulfilling jobs. Increasingly the types of tasks move beyond data entry and reconciliation to more cognitive tasks like process analysis, reporting, and even basic decision making that fit predefine tolerance levels. In the process, some companies reassign part of their human workers and establish a digital workforce. Imagine telling your digital assistant, “Alexa, please close the books, analyze overdue customers and initiate collections, prepare the report package for the board of directors, we’re at capacity so decide which customer order to delay”.

The most advanced automation happens in industries with experience in shared services, outsourcing and offshoring as that required them to displace and replace workforces and document processes well. The digital workforce leaders are in healthcare, telcos, financials and professional services and even manufacturing and the traditionally IT-savvy tech industry is a laggard in comparison.

Many private equity firms have focused on digital initiatives for a while with bankable results in areas like omnichannel commerce, online auctions, predictive analytics in sales and operations. Some of those digital initiatives took years to mature and often the ultimate gains in enterprise value ended up benefiting the next owners. Broad digital transformation is better suited in certain investment styles (growth equity) and does not have the short term benefits needed for others (turnaround, carveouts) or later in the investment cycle.

What is attractive about digital workforce or software based automation, is that projects are done in 3-4 months and EBITDA gains accrue in 9-12 months. This allows more flexibility in various investment styles and theses to incorporate automation as part of the main thesis elements or a side-car to the thesis (more on this below).

Working with firms with various approaches we have seen the following best practices:

  • Establish digital workforce targets in due diligence then roll those targets to specific automation projects in the 100-day plan
  • Use RPA as value accelerator for broader process optimization projects. While streamlining revenue lifecycle management in a healthcare portfolio company which will take years, you can partially fund the project with RPA-based savings by automating manual processes like claims entry, insurance coding, collections, etc. Some firms call it a side-car to an operating improvement element in the core thesis.
  • Use RPA to generate PE-holding specific reporting requirements in the portfolio company like 13-week cash flow or debt reporting. There can be a digital worker (RPA bot) deployed to every new acquisition and start preparing board packages and reports. There is no need to change their ERP system or create massive manual processes in Excel
  • Use bots to gather operational data not provided in underlying systems. This is especially true for a portfolio transitioning to Lean/Six Sigma. The cost of upgrading underlying ERP and MES systems could be cost-prohibitive. The bots can do data collection and analytics work.
  • In a carveout or rollup, the new entity has to consolidate data from endless systems. Bots can accelerate data migration, data consolidation and even move data between systems. This can delay the need for a major IT consolidation project especially in later years of the holding period. The payback on IT consolidation tends to point outside the holding period.
  • Containing SG&A growth in both growth equity and carveout is also an issue. Inefficient processes force back-office cost growth in line or above the top-line growth of the business eroding EBITDA gains. Deploying bots for new backoffice (finance, admin, HR, procurement) jobs can curtail the cost growth.
  • Job requisitions – go digital first. Another lean digital workforce practice is to go digital workforce first for new job requirements. Do you need an analyst? It can be a bot. Do you need an accountant? Can probably be a bot. Research shows 40-60% job tasks can be automated. It is a lot easier to automate jobs that have not been filled yet, than to reassign existing staff.

Automation is a rapidly evolving field with PE portfolios demonstrating major impact on EBITDA gains and enterprise value. As the industry matures, benchmarking will evolve to set realistic targets and comparables to better inform PE teams and their investment theses.


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