Yair Erez and David Poole, partners at Stanley Capital, discuss how the firm is using a combination of proprietary and third-party technology to accelerate target identification and expedite deal conversion.

RD: How does your firm incorporate technology into the deal origination process? 

Yair Erez: Essentially, we aim to be a digital business, rather than a private equity firm applying digital. We think that this needs to be a cultural design element, not an accident, so we want digital to be at the heart of everything we do – and that includes permeating throughout our origination process. 

Most importantly, we have defined digital as the technology we deploy to help enable our portfolio companies. This includes five ecosystems of automation and two main AI technologies (as opposed to an undefined concept).

Our digital edge in origination starts with our research process. We rely on highly intensive research-led origination, starting with deep dives into sectors and the publication of comprehensive research before we invest. Without technology, this would be sub-economic. Through application of a range of technologies, including proprietary products, we have created faster and more repeatable discovery, synthesis and publication. 

Put simply, our time to target identification is faster, and our quality of insight and foresight stronger, which drives our target discovery to be six to 12 months or more ahead of the market and our conversion ratios of lead-to-execution substantially ahead
of peers.  

RD: What systems specifically are you using? Are these off-the-shelf or built in-house?

David Poole: We have a confidential digital development product plan, using typical off-the-shelf private equity products together with our own bespoke enterprise architecture and tools. 

As an example, we have built a powerful in-house origination and value creation engine, Insight, which helps in originating potential investment targets, identifying relative value opportunities and providing a repeatable approach to value creation.

Insight applies the BERT and PaLM family of LLM models, which creates M&A landscapes, from proprietary and published sources, almost instantaneously. The results include clustering of targets, statistical KPI-led differences between clusters of companies in that landscape. This allows us to drill down quickly into sectors, subsectors and identify relevant investment targets.

Our digital-first approach post-origination is in effect a large systems integration and business architecture team that uses RPA, low code/no code, process mining, IDP, business process management, conversational and generative AI to re-engineer business processes. We use best-in-class third-party software in all of these technologies and implement that to facilitate revenue growth, margin expansion and competitive edge into our portfolio companies. This implementation is bespoke to the business and its operational needs. 

RD: When did you start implementing these systems, and what drove this internally? 

Erez: We have invested in digital products since inception in 2019. We think you cannot be a strong healthcare or resource efficiency GP without understanding how digital can make healthcare more efficient while also maintaining or improving patient care. A strong resource efficiency investor must have a clear idea of how digital can be deployed to save energy and the earth’s resources.

Our founding partners have led the strategy to date and initial execution of the digital-first strategy. This has been written  into the partnership agreement and now I, as head of transformation, along with David Poole, the head of SCP Digital, are leading the further development of Stanley’s IP and helping to standardise this approach.

The key steps have included the foundational partnership with UK-based software company Mathlabs to build Insight, through to today’s complete portfolio digital transformation capability built around our own SCP Digital platform that has a 120-person team doing hyper-automation, generative and conversational AI, and enterprise digital transformation projects, combined with our partnerships with technology vendors. 

RD: What was the biggest challenge you faced when it came to the original implementation, and what are some of your ongoing challenges in managing that technology on a daily basis? 

Poole: Our original digital strategy for portfolio transformation was focused on product partnerships led by a small digital team in-house. This model did not have enough connectivity to the market, which was moving faster than a PE-firm’s in-house team could track and relied on external implementation skills in a market with a real talent gap that led to inconsistent delivery and time-to-value of projects.

The formation of SCP Digital addressed this design weakness, giving us access to consistent and repeatable transformation SCP processes that de-risk and increase the return and time-to-value of projects. The connectivity to the market is solved by SCP Digital serving third parties as well as the SCP portfolio to drive wider applied learnings and market connectivity to innovation. 

This is an emerging area and we will continue to enhance our proposition – across our overall architecture, products and services. 

The continual challenge will be to stay at or ahead of the overall market, judging ourselves against the leading applications of technology, not our peers in private equity and their adoption.

RD: What are some of the highlights in terms of success you have had since adopting this approach?

Poole: Qinecsa, an SCP portfolio company in pharmacovigilance technology and services, leveraged our insight and other products to identify and execute five bolt-on acquisitions in less than 18 months.

Key to this execution was the use of Insight, which enabled us to identify each investment ahead of making the initial platform investment. This meant a well planned and seamlessly executed buy-and-build programme was possible. All of the initial conversations for the bolt-ons, bar the last one, were actioned during the first three months of the first platform investment being completed.

Across our platform, through application of a digital mindset, our performance KPIs across pace of origination, conversion of leads to deals, portfolio value acceleration and deployment rate of capital for a small team have all been substantially ahead of peer benchmarks.

RD: What pain points have you been able to eliminate or mitigate? 

Poole: Our use of technology has mitigated multiple typical pain points in the deal origination process.

For a start, our digital origination and transformation capabilities look totally differentiated to our competitors, immediately creating a competitive advantage intended to give us an edge when it comes to communication with sellers and management teams in processes. We undertake subsector landscape research promptly, recognising opportunities in minutes as opposed to months, which provides maximum visibility on the target market, and we review higher quality and more relevant opportunities. This sharpens SCP’s focus from an early stage onto only the investments that we want and have a right to win, and avoids wasting time on businesses outside our investment strategy. 

All of this leads to a higher conversion rate on opportunities, which is a key differentiator for us.

RD: Does your use of technology extend to the value creation process? What systems do you use for that? 

Erez: SCP Digital leads the digital diligence and value creation plan creation and execution of targets.

We bring SCP Digital with us from the first meetings with a target. With this in-house capability we can underwrite a value creation plan during diligence and immediately execute post-acquisition using our stack or repeatable templates and processes. We do not have to wait for augmentation of CTO or digital teams, target design or vendor selection processes that could take 12 to 24 months.

The first step is to understand how a business works and then map out its business processes. We can do that with our innovative process-mining software. Once mapped, we use the data to understand which technologies would be appropriate to redesign or improve the associated business processes.

Examples of the template tools include productivity and process mining, digital assistants, data structuring, intelligent decisioning, workflow orchestration and robotic process automation, which have been successfully implemented at our existing portfolio companies.

RD: Likewise, do you have any highlights and challenges that stand out in that value creation area when it comes to technology? 

Erez: At Qinecsa for example, SCP Digital has identified and is leading implementation of value creation opportunities through automation savings that could increase Ebitda by almost 100% in an already high-margin business. 

We implemented process-mining software in the business for six months to fully understand how parts of the business functioned. This identified large cost-saving initiatives through implantation of automation software such as email orchestration and using generative AI to allow touchless processing of adverse events in Qinecsa’s end sector of pharmacovigilance. 

RD: Do you think LPs look at the use of technology during the value creation process as a differentiating factor for a PE firm?

Erez: While most GPs claim that they use technology to deliver value creation, we believe LPs look for genuine differentiators when assessing GPs. 

SCP has a proven capability to drive actual earnings improvement, and therefore tangible value, through highly replicable digital, AI and automation solutions. This is a real digital track record.