Private Equity firms face a unique set of challenges when considering enterprise technology evaluation, selection, and implementation. When the "buy-to-sell" goal is to acquire manufacturing and distribution companies with the intention of aligning and integrating them profitably, there is no room for manual processes, stand-alone point solutions, duplicate data entry, workarounds or other inefficiencies.
As an independent ERP consulting firm, we understand a modern Enterprise Resource Planning system has the potential to support the profitability goal of the PE firm while maximizing resources. Smart use of ERP in acquired companies helps achieve higher returns and accelerates growth.
We've assembled the following popular Ultra blog posts that shed light on how enterprise technology solutions open the door for PE firms to gain value from modern enterprise systems, providing quick, easily defined reports, dashboards and scorecards that scale across their entire portfolio.
3 Issues Private Equity Should Consider About Enterprise Technology
When considering an acquisition, technology due diligence can uncover the complete picture of a company's existing software systems. Asking the right questions can shed light on gaps in processes, scalability and data collection which may effect the viability of the acquisition.
Here are three points to keep in mind when evaluating the existing technology of potential acquisitions.
- Do the legacy systems offer core functionality throughout the enterprise?
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.
Are current systems scalable and flexible to handle future 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.
How accurate, transparent and visible is the data?
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.
5 Guidelines to Drive Value
To help PE firms understand the best path to success, see the following guidelines on setting the most effective fast track to ROI when it comes to Private Equity Firms and Enterprise Technology initiatives.
Start with the Current State
Very often, a PE firm looks to evaluate the current state of how a manufacturer leverages enterprise technology. A pressing issue for advisors is to understand what is needed for due diligence to evaluate if the organization runs an effective operation. Key considerations related to enterprise technology involve visibility, accurate reporting, and real-time access to information.
A comprehensive current state analysis assesses whether the manufacturing organization's legacy systems offer core functionality without the need for manual, expensive, timeconsuming stand-alone systems, manual record-keeping, narrow or unreliable integrations across third-party systems, and other limitations.
Put the Goal on Process Improvements
As a firm acquires manufacturing and distribution companies, once the current state is analyzed, it is key to understand the desired future state with business process improvement as the goal.
More than just a technology initiative, Private Equity firms must be sure that business processes are tightened and streamlined across the organization.
Assess Scalability, Flexibility
How well does the current technology support growth in the business? Are processes flexible enough to support easy changes in procedures to support a new acquisition or expansion of sales channels?
As the firm continues to acquire new businesses within the manufacturing sector, it should be a straightforward process to incorporate the new company onto the ERP platform. With a modern enterprise system in place, integrating newly acquired businesses or expanding market potential is often a simple matter of configuration rather than expensive programming.
Focus on Reporting, Data Visibility
With a newly acquired company, is performance data easily transformed into meaningful information? Technology that supports today's best practices has made reporting actionable and available in real-time. Business intelligence is an important tool for PE firms to measure value and progress and predict cash flows.
Manage Change and Risk
Driving process improvement, integrations of companies, or technology projects can be complex. For lasting change, the emphasis must be on people and processes. The most sophisticated PE firms recognize that managing risk and change drives scalability and growth.
Get on the Fast Track
For the PE community, growing portfolio revenues and profits are dependent on process improvement supported by enterprise technology systems, including ERP. Well-managed process improvement and/or technology projects will drive cost savings and operational improvements, helping companies survive and thrive.
Centralized ERP: What Makes Sense for PE firms?
The Ultra team is often called into a client engagement when a private equity (PE) investor acquires a manufacturing enterprise—whether in automotive, heavy duty, aerospace, food processing or other sectors. During an acquisition process, issues with legacy or outdated ERP systems come to the forefront, since PE firms usually seek to have centralized ERP, including performance data, reporting and IT.
We've seen situations where departments and divisions of the acquired company find they can no longer function independently of each other, maintaining basic spreadsheets of outdated information. Thus the need for centralized ERP.
In many engagements, Ultra offers Business Process Improvement services across the acquired enterprise. This service aids centralized ERP, to improve efficiency across the entire scope of business activities. These activities include operations and production, supply chain, transactional activities, sales, service, engineering, distribution and ongoing customer satisfaction.
We add value by helping the acquisition set the course for achieving new levels of profitability, margin, and growth.
The Importance of Visibility, Centralized ERP
One of the biggest issues we hear from PE companies acquiring manufacturing companies with older ERP systems is a lack of access to information and the need for centralized ERP. For the PE company, an effective ERP selection and implementation helps the enterprise manage its performance with real-time visibility into the entire business. The PE firm benefits when an ERP system offers extensive reporting and analytics that track engineering and production, management of materials, quality, scheduling, tool tracking, inventory management and more in real time.
During an ERP or BPI engagement, we help the PE and manufacturing team assess:
- Key performance metrics
- Technology platform options
- Information access methods: scorecards, dashboards, data cubes for analysis, and
report processing
- Business data dimensions, i.e., how we want to look at the business
For enhanced reporting and tracking of key metrics across the new acquisition, key performance metrics are developed with the business users. The goal is to leverage technology to get the information the PE team needs to accurately track business performance across the acquired enterprise.
A PE Success Story
We recently teamed with a PE organization that acquired a rapidly growing service provider and distributor of restaurant equipment. The food service company serves more than 16,000 customers including national chains and institutional food service organizations around the U.S.
The company is based out of four US locations and 10 distribution centers. After the food equipment company was acquired by a PE organization, it became clear that legacy ERP system was at the root of many challenges. The equipment company was unable to share data across the distribution center and main locations, thus they worked less efficiently, created waste, and lacked the ability to see manufacturing and distribution processes in real time.
Reporting was especially cumbersome. It was a challenge to get a real-time view into performance data, and reports required manual work-arounds and duplicate data entry. Ultra was engaged to do a full business process improvement and software selection.
After a careful analysis of current state and future state of operations, with an eye toward driving process improvement, the food equipment company selected the Cloud ERP technology platform. Once the detailed ERP requirements definition was concluded, the solution from NetSuite was selected as the best fi t, since it let the organization access needed functionality and provided the ability to add more functions as the need arises. It also lets them ramp up additional facilities as acquired by the PE firm.
A SaaS or Cloud model lets the enterprise avoid costly hardware, software, IT maintenance, upgrades, security and other costly infrastructure. With improved tracking and reporting, the PE company has gained the ability to act quickly, correctly and confidently when optimizing performance.
Final Thoughts on Centralized ERP
For the PE community, it's important to consider that return on investment (ROI) is realized from process enhancements made possible by effective selection and implementation of ERP software.
A well-managed ERP selection and implementation can be a continuing source of cost savings and operational improvements, both of which help companies survive and thrive.
About Ultra Consultants
When it comes to Private Equity Firms and Enterprise Technology, PE firms seek out Ultra Consultants as investors consider merger and acquisition activities in the manufacturing and distribution sector. Our specialized experts guide teams in business process improvement, enterprise software selection and implementation, as well as change and risk management for projects that deliver ROI.
PE firms team with Ultra for risk mitigation and organizational change management delivered with a structured, purposeful approach aimed to help transition people, teams, and organizations from the current state to the desired future state. For the PE investor, Ultra's team puts the focus on value creation and running portfolios for the best return on investment.