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The rules of engagement are shifting rapidly in the private equity space. As competition for quality assets intensifies, valuations fluctuate, and pressure for distributions rises, PE firms face urgency to accelerate revenue growth.
The old playbook of building a value creation strategy after the deal closes is no longer viable. Firms must be prepared to actively enhance a portfolio company’s performance from Day 1.
In this high-pressure environment, traditional private equity value creation levers like reorgs and geographic expansion are no longer enough. Next-gen technology—including cloud and AI solutions—has emerged as a crucial differentiator for portfolio performance. Let’s explore the strategies firms are leveraging to drive value creation with tech.
Leveraging Next-Gen Technology for Value Creation
Legacy systems often struggle to provide the agility and scalability modern portfolios demand. Today, general partners are switching to tech solutions that can flex with market changes, delivering efficiency and visibility across portcos. The following examples demonstrate how PE firms can strengthen performance with next-gen technology.
Streamlining Operations with High-ROI Technologies
Smart technology investments are revolutionizing how PE firms drive operational efficiency across their portfolios—and AI solutions in particular are transforming ROI. According to the World Economic Forum, 93% of private equity firms expect to achieve moderate to substantial AI-driven value within 3-5 years.
How so? Artificial intelligence is automating workflows that were once considered too complex for automation, such as portfolio monitoring and financial analysis. Beyond routine tasks, AI is rapidly reducing bottlenecks in both firm and portco operations, often meeting requirements with greater accuracy. Plus, this innovation is delivering predictive insights that accelerate the optimization of value creation strategies.
Cloud infrastructure has proven to be an effective foundation for many technology-focused value creation initiatives, including those leveraging AI. Portfolio companies operating on the cloud can achieve rapid deployment and scale without the traditional burden of heavy upfront costs. This cloud-first approach ensures flexibility and highly efficient resource allocation.
Elevating Transparency with Consolidated Data
For private equity firms, data fragmentation presents a major obstacle to value creation. Information silos, within individual organizations and across your entire portfolio, can become hindrances in cross-team collaboration, preventing fully informed decision-making across the portfolio.
Unsurprisingly, PE leaders are shifting toward unified data systems that elevate transparency. The advantage of next-gen solutions, such as ServiceNow and Salesforce, lies in their ability to consolidate data. PE firms gain a single source of truth for portfolio performance. With reduced complexity—especially for firms managing global operations—general partners can identify growth opportunities with greater speed while mitigating risks before they occur.
Mitigating Risk with Real-Time Insights
For private equity leaders, intelligent technologies are proving to be powerful decision-making tools. Deloitte reports 25% of firms will use AI for portfolio valuations by 2030—rapidly increasing the speed and frequency of assessments. This can offer several key benefits:
- More accurate valuations, preventing premature portfolio rebalancing and suboptimal exits.
- Compliance with growing reporting requirements, mitigating the impact of any added scrutiny from the U.S. Securities and Exchange Commission (SEC).
- Greater transparency for limited partners (LPs), boosting long-term confidence and trust.
AI can further equip private equity leaders with predictive insights. Leveraging the real-time data collected across portfolio companies, AI models can provide instant forecasting and identify performance gaps. With this knowledge, PE managers can proactively adjust their value creation and investment strategies to maximize portfolio health.
Evaluating and Implementing Next-Gen Tech Solutions
Next-gen technology holds immense potential—but a half-baked implementation plan can hinder value creation capabilities. PE firms looking to leverage AI and cloud-based solutions must first evaluate the viability of digital transformation opportunities before moving full speed ahead. General partners should consider:
- Is the solution compatible with existing systems? Technologies that deliver the most value will seamlessly integrate with current applications and work with existing hardware, minimizing disruption.
- Is the solution scalable? A shift away from legacy systems should empower you with scalability—whether you’re predominantly working with small-cap, mid-market, or large-cap companies.
- Does the solution align with my strategy? New technology should be conducive to your existing value creation plan, especially if you’re years into executing the strategy. It should also align with your firm’s core investment thesis for the portfolio company.
- Do I have the expertise to implement and optimize this solution? A lack of technical expertise isn’t a dealbreaker for a solution—but you need to be aware of your immediate and long-term hiring or outsourcing needs before you move forward.
With the right solutions identified, private equity firms must prioritize change management. Gallup reports 67% of employees who experience extensive disruptive change are more likely to have issues with leaders or managers.
PE and portfolio company leaders can soften the impact of digital transformation by involving employees at all levels in key initiatives. When employees feel a sense of ownership, the adoption of new workflows can accelerate and drive faster ROI. Further investments in training—including upskilling and reskilling—can also strengthen internal confidence amid change.
Strengthening Technology Resilience in the Future of Private Equity
The next wave of private equity value creation will continue to be driven by technology—in particular, tools that accelerate digital transformation and build resilience across the portfolio. Firms are trending toward the adoption of:
- Low-Code and No-Code Solutions: Business teams will be empowered to create more custom solutions—or optimize existing ones—without lengthy IT projects in the coming years. Faster, democratized development has potential to unlock rapid value creation.
- Advanced AI Systems: PE firms are only beginning to scratch the surface of AI. Deeper automation will continue to drive efficiency gains, while predictive insights will support better deal sourcing, contract management, portfolio valuations, and other critical tasks.
- Cybersecurity Innovations: With global cyberattacks on the rise, digital transformation initiatives will need to be paired with robust cybersecurity solutions to protect valuable data and systems at scale.
Success in this evolving landscape requires a structured approach to assessing and improving digital maturity across portfolio companies. Leading PE firms are implementing regular evaluations that leverage a range of tactics, including:
- Structured Reviews: Leveraging interviews, surveys, and system audits to identify inefficiencies or misalignment with organizational goals.
- Gap Analyses and Roadmaps: Assessing, identifying, and documenting key areas for digital improvement and clear steps to achieve the ideal state.
- Continuous Updates: Establishing regular checkpoints for current IT systems to keep pace with evolving tech.
These assessments aren’t one-time events. They’re part of a continuous improvement cycle that helps portfolio companies stay ahead of technological change.
Technology expertise is invaluable here. At Dexian, we are constantly innovating new IT solutions to meet evolving demands in the private equity sector. Our experts empower PE firms to accelerate digital transformation—maximizing value creation with advanced technologies like machine learning, cloud platforms, and data analytics—while ensuring resilience for the future.
Get customized technology strategies with support from Dexian.
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