Private equity firms can use tech investment for EBITDA growth by focusing on strategic intent, operational discipline, and value creation.
For private equity, digital transformation is no longer a catchphrase, it’s a strategic imperative. Yet, many portfolio companies still struggle to translate technology investments into measurable financial outcomes.
The question is not whether to invest in tech, but how to help those investments drive EBITDA growth. Explore strategies to help turn technology investments into operational savings and additional revenue.
Start with value creation, not just modernization
Too often, digital initiatives begin with a desire to modernize systems or digitize operations. While these goals are valid, they must be anchored in a clear value creation thesis. Whether it’s reducing cost, increasing revenue, or improving working capital, every tech dollar should be tied to a financial level.
Example: A retail pharmacy chain investing in a centralized inventory management system can reduce stockouts and overstock, directly impacting costs of goods sold and improving gross margin.
Prioritize scalable, repeatable wins
Private equity thrives on scalability. Technology investments should be evaluated not just for their immediate impact, but for their ability to scale across locations, business units, or portfolio companies.
Example: Implementing a shared services model for finance and HR across multiple portfolio companies using cloud-based ERP can reduce selling, general, and administrative expenses and improve EBITDA margins.
Use data to drive operational efficiency
Data is the fuel of digital transformation. Portfolio companies harnessing data effectively can uncover inefficiencies, analyze pricing, and improve customer retention.
Example: A B2B distributor using predictive analytics to improve delivery routes and inventory levels can reduce coordination costs and improve EBITDA by several basis points.
Monetize digital capabilities
Some tech investments open doors to new revenue streams. Whether it’s launching a customer portal, offering subscription services, or monetizing proprietary data, digital capabilities can be a source of top-line growth.
Example: A health care services company implementing a telehealth platform can expand its geographic reach and billable services, driving both revenue and margin expansion.
Measure ROI with discipline
Tech investments should be tracked with the same rigor as any capital expenditure. Establish KPIs linking directly to EBITDA drivers — cost reduction, revenue growth, margin improvement — and monitor them quarterly.
Example: A manufacturing firm implementing internet of things sensors to reduce downtime should track uptime improvements and correlate them with production output and EBITDA impact.
Align incentives and culture
Digital transformation is as much about people as it is about platforms. Aligning leadership incentives with digital KPIs and fostering a culture of innovation increases adoption and accountability.
Example: Tying a portion of management’s bonus to successful implementation and the ROI of a CRM system can accelerate adoption and improve sales productivity.
How CLA can help private equity with tech investments
For private equity firms, the path from digital investment to EBITDA growth is paved with strategic intent, operational discipline, and a relentless focus on value creation. CLA can help you turn technology investments from a cost center to a profit engine waiting to be unlocked.