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The number of public companies have declined 20% in the last 10 years. This trend continues as more companies go private. The number of private equity deals are at an all time high and so are valuations. There is a massive amount of dry powder waiting to be invested as pension funds keep pouring more money into private equity to boost their own lagging returns. The total private equity industry assets in the US are now equal 20% of the S&P valuation.

High valuations and endless capital put pressure on PE firms to invest in more and larger businesses and expand value creation strategies. Firms are adding even more operating partners, technology experts and industry advisors. The PE funds are using their industry and operational expertise to target more and larger carveouts from conglomerates. The complexity of such divestitures require more sophisticated technology tools. Also there is an increasing number of business rollups in industries where the firms have experise. Rollups tend to shape new business models and leverage digital technology even more than traditional buyouts. As a result, PE firms are expanding their use of technology in value creation strategies beyond backoffice, sourcing and reporting tools of the past.

There is a push to digitize all back office and put those processes in the cloud. There is a change in the use of analytics with the focus more on predictive analytics and not on reporting. Most firms have a cybersecurity initiative, sometimes even mandating security practices and tools to the portfolio companies to reduce business risk. Many firms are even experimenting with using machine learning and artificial intelligence especially in supply chain, maintenance and customer interactions. There is a belief that digitizing business models more predictably increase exit valuations than other operating strategies.

 

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