Fit for the future
Private equity’s pursuit of value creation in portfolio companies has led to a greater focus on digital strategies in recent times. But to what extent do firms actually invest in new technologies to foster operational efficiency and drive growth? A new research paper looks into the issue.
By Nicholas Neveling
Private equity firms have long invested directly into technology companies – tech deals accounted for more than a quarter of global PE deal value in 2024, according to McKinsey. Yet they are also increasingly finding ways of using digital technologies to create value across all sectors in order to position their portfolio companies for a world where, according to a separate McKinsey analysis, more than 90% of businesses are undergoing digital transformation.
This trend is the subject of a recent academic study, Private Equity and Digital Transformation, which analysed data on thousands of buyout and growth-backed portfolio companies to explore the extent to which PE investment stimulated digital transformation within them.
The paper notes that some earlier research found evidence of PE firms holding back on IT investment. Some, for example, found that high up-front capital spending and uncertainty about a technology’s success could disincentivise PE investors from pursuing digital investment. Yet the authors hypothesised that today’s PE industry, which has become increasingly competitive and more focused on value creation, could instead be a “driving force to accelerate digital transformation.”
“We began this research because we were interested in understanding the role of PE investors in technological transformation within private companies,” says Suraj Srinivasan, one of the authors.
While there is substantial literature on how PE firms drive operational improvements and financial restructuring, less attention has been paid to their influence on digital investments and technology adoption.
Suraj Srinivasan