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This has been the year where many private equity firms started adopting robotic process automation at scale in their investment theses. After the first six months of the year, there are a couple of best practices emerging from our engagements in private equity:

#1 Start with finance to gain experience and bankable value

The finance function is typically the most structured. It also tends to have a lot of manual processes and repetitive tasks that are ripe for automation. It is easy to drive significant cost savings in A/R, A/P and general accounting in weeks and not years.

For most PE investment theses optimizing back-office functions is secondary to driving revenue growth and streamlining the supply chain. Therefore software robots can deliver tangible short term savings while significant transformation initiatives are underway.

#2 Align with investment thesis for highest potential

In a 3-5 year holding period, there is little time for IT experiments and proofs of concepts. Robotic value creation should focus on driving EBITDA growth quickly and support the key pillars of the investment thesis.

With 40-60% typical savings in back-office and 20-30% in the front office, RPA has become a great value driver for PE firms. In fact, firms with very different investment styles have integrated RPA value creation into their overall theses:

  • Turnaround firms managed to reduce repetitive back-office processes
  • Carveout firms that wanted to keep the spinoff entity costs contained adopted a bot first strategy in building up the workforce
  • In growth equity, we’ve seen bots used to contain back-office headcount growth in check as the revenue line expanded
  • In rollups, the overlapping functions can be standardized and optimized with functional bots like digital finance clerks and data entry specialist

#3 Speed over perfection

Management teams often want to finish perfecting business processes. Often those projects started years ago with ERP and are still unfinished. Robotic value creation should be all about speed, not perfection

It is easy to change the bots as processes evolve or change compared to the herculean effort of enterprise system changes. Consequently, many firms now look at RPA to help avoid the cost and disruption of major ERP upgrades or IT transformation.

While many IT projects fail to deliver measurable value, most PE firms find RPA a clear example of short term, tangible IT value creation.

#4 Use consulting partners in doing not thinking

PE firms want consultants to focus on getting the results vs thinking about them. Digital transformation consulting projects are plagued with endless proofs of concepts or process evaluations that add little tangible value.

Leading PE firms and portfolio companies focus on delivering several smaller pilots with measurable EBITDA gains. For the price of a process design workshop, dozens of bots can be up and running

#5 Maximize value in holding period

In the 4-5 year holding period robotic value creation projects can be a major value contributor especially in SG&A and contact centers. Automation projects should be rinse and repeat with EBITDA gains delivered quarter after quarter.

The best practice calls for a small core team who knows how to drive value over and over again. PE firms tell me that it is critical not to leave too much money on the table for the next buyer.


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