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Digitization has led to value creation throughout an array of industries – and the private equity industry is no exception. While digitization optimizes customer interactions, data collection, risk management, and capital organization, perhaps digital’s greatest contribution to ROI can be found in its operational improvements.

During SuperReturn International in Berlin, the majority of interviewed PE firm partners stated that operational improvements have increased their ROI over the past 3 years and that these ROI improvements were noticeably impacted by the firm’s digitization. Additionally, the vast majority of the respondents expect digitization’s impact on ROI to further increase in upcoming years.

Of the numerous ways in which companies can harness digital transformation, PE firms believe that R&D and innovation areas are most susceptible to positive impact as a result of digitization, followed by “purchasing & production”, “marketing, sales, and customer service,” and “supply chain and logistics”. This makes clear that one must consider the “digital” value chain as a whole and not just parts of it.

Furthermore, digitization was named as the most important lever to value creation within the equity/investment story, ranking above “operational cost reduction”, “sales and channel effectiveness”, and “overhead support functions”. This speaks to how the majority of PE firms say that digitization has changed the way investments are viewed as well as the methods by which the equity story of an investment is modelled.

Taking these opinions into consideration, it is not difficult to understand why almost all PE firms say that digitization is important to the future exits from their current portfolio companies and the subsequent returns. The focus is to digitize portfolio companies so as to speed up the realization of the equity story and thus decrease the holding period of the portfolio.

 

OMMAX – Digital Solutions is an international digital consultancy company based in Munich and Hamburg that helps mid-sized companies, large enterprises (B2B and B2C) and investment firms (buyer or seller side) strategically and operationally with complex digital transformation and data-driven projects. Request more information: stefan.sambol@ommax.de