Get More Value Out Of Your IT Due Diligence – It Will Add to Your Competitive Edge

There was a time when IT due diligence barely featured in assessing a company for private equity investment. Financial, strategy, market and legal due diligence all have longer histories but as the corporate universe becomes progressively more digital, private equity increasingly looks to technology-first businesses and the application of technology across the broader portfolio to maintain the outperformance commonly associated with alternative asset classes. Digital advantage is more critical than ever and the consequence is that the capability and scalability of a potential portfolio company’s technology platform is rising up the hierarchy of due diligence importance.

Comprehensive IT due diligence work does not just help mitigate risk and address inevitable gaps in value perception between buyers and sellers. It also affords opportunity for private equity investors to identify additional levers to help drive new portfolio company growth beyond 100-day value enhancement plans. That early insight can also provide an edge during due diligence, negotiation and manoeuvring with competitor investors. If your IT due diligence provides better insight into the potential for the application of technology to further improve the performance of any prospect, that can allow for a deal-winning value assessment.

Panamoure’s own research amply demonstrates how private equity has increasingly favoured more technologically advanced businesses as investment prospects. You can read our report How Technology Saw UK Private Equity Through The Worst Of Covid here.

Private equity’s increasing focus upon technology-first companies contributed to the welcome uptick in investments activity in the first half of 2021. According to management consultancy, Bain & Co, one third of buyout deal activity in the first half of 2021 was for technology-first companies. Their Private Equity’s Wild First- Half Ride reports record-breaking deal activity and amounts of uninvested capital in the first six months of 2021. If the second half proves as active as the first, it will be the first time that global deal activity has exceeded $1 trillion and will better the previous investment activity record from before the Global Financial Crisis. The firm also estimates uninvested capital held by private equity firms across all investment stages and markets, at the end of June 2021, amounts to an astonishing $3.3 trillion.

Increased deal activity will mean greater competition between private equity houses for the most attractive investments, as they battle to put that mountain of dry powder to work. That will mean more due diligence, both for those transaction opportunities that fall away, as well as those deals getting across the finishing line to completion. Here is how IT due diligence helps with that growing level of competition.

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