PE Firms and ERP – 3 Issues Private Equity Should Consider About Enterprise Technology

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Ultra Consultants works with our Private Equity clients and their portfolio companies on a daily basis, and there is no more critical time for us to advise these firms than when they consider merger and acquisition activities in the manufacturing and distribution sectors.

Our experts make key assessments about the current state of newly acquired companies in order to best assist the PE firm with value realization activities, especially in the selection and implementation of ERP software.

First, we help our PE clients assess the efficacy of the manufacturing or distribution company’s current leverage of enterprise software and IT infrastructure. A pressing issue for financial sponsors is to understand what is needed to support a future strategy of growth and value creation. To discover these needs so our PE clients can know the expected efficiency gains from implementing enterprise technology, we seek the answers to three primary questions:

1. Do the legacy systems offer core functionality that supports today’s best practices throughout the manufacturing enterprise?
2. Are current systems scalable and flexible to handle future growth?
3. How accurate, transparent and visible is the data?

Let’s examine each in detail. 

1. Do the legacy systems offer core functionality throughout the enterprise?

Functionality to streamline processes and systems.

Private Equity firms must assess whether the manufacturing or distribution company’s legacy system offers core functionality of processes without the need for manual intervention or additional siloed, third-party systems. In the course of a business process analysis, the PE firm should clearly understand whether the company’s current technology supports the best practices of its related industry.

One way to determine if the legacy ERP is effective is to document how many steps an order goes through before it is released to fulfillment. If it is repeatedly scrutinized outside the mapped flow of the system, it is an indication of potential waste and inefficient processes that need to be addressed. For example, operational processes such as Order to Cash and Procure to Pay should have a consistent and accurate flow of information that doesn’t include an inordinate number of exceptions.

Exceptions to the established processes should be controlled through actionable workflow and alerts which are available through good role-based dashboards or Business Intelligence alerts within modern ERP systems.

All activities that are handled outside of the core system through spreadsheets or separate databases should be analyzed for inclusion in the business case for an updated ERP.

2. Are current systems scalable and flexible to handle future growth?

Scalability for flexible growth.

When an organization’s financial sponsors expect aggressive growth, business process transformation must be the central focus to achieve eventual value creation. Thus, management must assess how well the current technology supports growth in the business. For example, leadership should determine if the existing processes are flexible enough to support easy changes in procedures in case of organic or inorganic growth.

This way, when a PE firm acquires an add-on to one of their platform companies, there is a straightforward process to incorporate the new location onto the ERP platform.

3. How accurate, transparent and visible is the data?

Measuring, recording and presenting the data for better decisions and controls.

Lastly, we encourage our Private Equity clients to examine the new company to determine if the current ERP solution allows for accurate, real-time data about the entire supply chain and production, including warehouse management and the ability to track production and quality.

As part of ERP process improvement services, PE firms gain value when they can rely on features to increase data access and visibility, especially with custom Key Performance Indicators (KPIs). Information that is consistent across all departments and is reliable ensures that cost capture and revenue reporting are accurate and reflect an up-to-date health check on the business.

The right modern ERP technology can accommodate industry best practices while remaining scalable and flexible for future growth, all with accurate, transparent and visible data. With modern enterprise systems in place at their portfolio companies, Private Equity firms can easily acquire additional businesses or expand market potential–often through a simple matter of configuration rather than a significant system overhaul.

PE firms gain value from modern enterprise systems that provide quick, easily defined reports, dashboards, and scorecards that scale across their entire portfolio.

We’ve touched on just a few issues of note regarding PE firms and managing the profitability of their portco through current ERP solutions. For a deeper look at the ROI delivered by modern ERP functionality, contact the Ultra team.

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