Private equity firms are accelerating digitisation plans dramatically as Covid bites, says director and co-founder of Palladium, James Prebble.

How has Covid impacted private equity firms’ attitudes towards accelerating digital capabilities in their portfolio companies?

A lot of private equity portfolio companies will have had digitally-led change initiatives on their agenda for quite some time. What Covid has done, is emphasise just how important it is to have a digitally connected workforce and to have platforms that enable customers to self-service, or at least start their interactions through digital channels. And, of course, that shift in emphasis is filtering back into due diligence because, before they invest in a business, private equity firms need to be sure that business is fit for the future.

To what extent do you see your role as mitigating digital risk, and to what extent is it about identifying untapped opportunity?

Mitigating risk is exceptionally important. We help investors to make the most informed decision they can with regards to a potential deal. But equally, we help them understand where the digital opportunity lies. They go in with their eyes open, armed with the right information to accelerate change and add value.

Because there can be no doubt whatsoever that what we do leads to value creation. Alongside digital transformation programmes, one of the fastest growing areas of our business since the arrival of the pandemic has been helping companies build their future digital roadmaps prior to exit. We help those companies, and their investors, plan out a digital future ready for the next potential investor to take the company on that journey.

Has Covid highlighted the importance of looking at every deal, regardless of sector, through a digital lens?

Our clients stem from a wide range of industries. We are working with financial services companies both in a B2B and B2C capacity with their customer experience strategies, many of them asking themselves the question, ‘how best do we engage customers through digital channels’ with their customer experience strategies. We are working with a publishing business aiming to digitise a number of its more manual processes and we are supporting ecommerce businesses to scale their operations in the face of unprecedented demand.

Meanwhile, we have been part of the deal process for professional services firms where their ability to generate demand for their services through digital channels is of paramount importance to the investors. As well as fitness and leisure businesses, where the sustainability and portability of their digital model has come under scrutiny. The breadth of need is enormous and spans all sectors.

What deals have you been proudest of in recent months?

We are very proud of a major athleisure deal we worked on earlier this year and we are also extremely proud of supporting Vitruvian in its acquisition of Sykes Holiday Cottages. That was a highly competitive process. We were able to help Vitruvian to understand the sophistication of Sykes' digital operating model.

We also helped them to understand how scalable the revenue generation model was. More than that though, we helped them to understand just how much headroom remained in which to grow the business.

What are the most important digital trends that private equity firms should be paying attention to right now?

The value being placed on online communities is a very significant trend. If you look at the big brand companies that have been brought to market recently, the killer question being asked by prospective buyers is ‘how much value is there in the community’? Tech-led businesses have long commanded superior multiples. We are starting to see communityenabled businesses do the same.

Efficiency-driving automation is also a prominent theme. Automation used to be limited to engineering and manufacturing. Now, we are seeing that manifest itself in businesses where you wouldn’t expect it, for example, legal firms, care businesses, training organisations - we have seen some interesting developments in a number of sectors this year.

After a year like 2020, making predictions is tough, but how do you expect the next 12 months to pan out?

I think that the remote workforce is here to stay – and that’s not just people who always had the option of working from home, taking it up – it means people that used to trek into a contact centre and work alongside hundreds of others, will no longer need to do so. As a result, the need for businesses to demonstrate that they can operate just as well with a disparate workforce will be critical.

I also think there will be a huge growth in data analytics capabilities. Data driven decision making is here to stay and many firms are still playing catch up.

Finally, there is a definite movement towards businesses developing digital capabilities inhouse and we fully support that trend. We have no doubt that there will always be a need for external expertise, but it is important that the business itself is driving the digital agenda. I expect we will see an explosion in the hiring of inhouse talent over the next few years and we are excited to see that happen.