By Scott B. Meyer, Glenview James LLC
Time was we had tech deals and non-tech deals. But the world has changed, and today, as Kewsong Lee of Carlyle Group puts it, “every deal is a tech deal.” Even old-school industries are confronting digital transformation.
This change has particularly hit home in private equity. Due diligence is the critical time to determine whether a company you’re considering investing in has a good digital strategy.
Clarifying digital strengths and weaknesses, and pricing them into your bid, is key to driving returns. The hard work of digital transformation kicks in post-closing, so diligence is your only chance to figure out what you’re getting into.
Easier said than done. Unwrapping the tech piece during diligence isn’t second nature to most sponsors.
Repeatedly, I see four main problems that can complicate your analysis, mess up your bid and depress returns. They are:
- tech buzzwords;
- claims of immunity;
- the digital-transformation conundrum, and
- a focus on process over results.
In this first part of a four-part series on how to make digital a key part of due diligence, we look at how to handle the Blizzard of Buzzwords scenario.
Imagine this. During diligence, you’ve asked, “What’s your digital strategy?”
Ask the business people about the technology and the technology people about the business. The software is no longer the complex part here. It’s the alignment with the business strategy that matters.
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