Leveraging Technology: Enhancing Operations and Boosting EBITDA in Private Equity Owned Portfolio Companies
Abstract
The aim of the study is to determine how private equities increase the earnings before interest, taxes, depreciation and amortization (EBITDA) of their portfolio companies via tech-enabled improvement of operations. The paper analyses how private equity (PE) firms can optimize their existing business products and services to reduce non direct IT related costs. It also breaks down the application of system enhancements which increase automation and drive improvement in the PE firm context. The skillsets and involvement of C-suite managers are analysed in-depth in tandem with the role of the value creation strategy in process reengineering. Cumulatively, the paper calls on the need to initiate tech-enabled improvement of operations so as to improve revenue which is positively correlated with an influx in the EBITDA rates. In order to explore the role of tech-enabled improvement of operations in the creation of value in PE firms, the researcher relied on the use of two research paradigms namely positivism and interpretivism. The two informed the qualitative design which adopted semi-structured interviews with 29 respondents from 3 private equity firms. The data analysis process involved the identification of themes through thematic analysis. Using the constant comparative method, the researcher was able to determine the specific themes that were correlated to the responses provided and subsequent classification into the aforementioned 3 categories. The qualitative data reveals that most PE firms rely on tech-enabled improvement of operations to increase their EBITDA and value.
References
[1] Acharya, Viral V., Oliver F. Gottschalg, Moritz Hahn, and Conor Kehoe (2013). Corporate Governance and Value Creation: Evidence from Private Equity. The Review of Financial Studies, 26(2): 368-402.
[2] Astalin, Prashant K. (2013). Qualitative Research Designs: A Conceptual Framework. International Journal of Social Sciences and Interdisciplinary Research, 2(1): 118-24.
[3] Åstebro, Thomas (2021). An Inside Peek at AI Use in Private Equity. Journal of Financial Data Science, 3(3): 97-107.
[4] Aziz, Waleed A. (2019). Business Process Reengineering Impact on SMEs Operations: Evidence from GCC Region. International Journal of Services and Operations Management, 33(4): 545-62.
[5] Bakhtiyari, Mehrsa (2019). Business Process Management, Business Process Reengineering and Business Process Innovation. DOI: https://doi.org/10.22541/au.157255517.73053404
[6] Barber, Felix (2008). The Strategic Secret of Private Equity. Strategic Direction, 24(2). DOI:https://doi.org/10.1108/sd.2008.05624bad.003
[7] Bratton, William W. (2008). Private Equity’s Three Lessons for Agency Theory. Brooklyn Journal of Corporate, Financial and Commercial Law 3(1). Available at: https://brooklynworks.brooklaw.edu/cgi/viewcontent.cgi?article=1132andcontext=bjcfcl
[8] Candasamy, Murugessen, and Bhavish Jugurnath (2015). An Empirical Analysis of the Determinants of the Performance of the Global Private Equity Funds Markets. Journal of Modern Accounting and Auditing, 11(11): 581-95.
[9] Casalino, Lawrence P., Rayhan Saiani, Sami Bhidya, Dhruv Khullar, and Eloise O'Donnell (2019). Private Equity Acquisition of Physician Practices. Annals of Internal Medicine, 170(2): 114-5.
[10] Caselli, Stefano (2010). Strategies, Business Models, and Perspectives Of Private Equity and Venture Capital. In: Private Equity and Venture Capital in Europe: Markets, Techniques, and Deals (pp. 279-96). Cambridge: Academic Press.
[11] Chen, Huayi, and Ma Tieju (2017). Optimizing Systematic Technology Adoption with Heterogeneous Agents. European Journal of Operational Research, 257(1): 287-96.
[12] Cohn, Jonathan B., Edith S. Hotchkiss, and Erin M. Towery (2022). Sources of Value Creation in Private Equity Buyouts of Private Firms. Review of Finance, 26(2): 257-85.
[13] da JLPF Cardoso, Rebentisch, E.S., Rhodes, D.H., and Soares, A.L. (2022). Value of Concept of Operations Analysis for Digital Transformation Using Digital Twins. Product Management and Development, 20(2). DOI:http://dx.doi.org/10.4322/pmd.2022.023
[14] Darby, Jessica L., Brian S. Fugate, and Jeff B. Murray (2019). Interpretive Research: A Complementary Approach to Seeking Knowledge in Supply Chain Management. International Journal of Logistics Management, 30(2): 395-413.
[15] Davis, Steven J., John Haltiwanger, Kyle Handley, Ron Jarmin, Josh Lerner, and Javier Miranda (2014). Private Equity, Jobs, and Productivity. American Economic Review, 104(12): 3956-90.
[16] Ebrahimi, Mahshid (2019). Adoption of New Technology: In Private and Public Organizations of Developing Countries. In: Private Sector Innovations and Technological Growth in the MENA Region. Pennsylvania: IGI Global. DOI: https://doi.org/10.4018/978-1-5225-7086-8.ch001
[17] Farman, Madeleine (2019). Long-Term Fund Strategies Gaining Ground in Private Equity. Available at: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/long-term-fund-strategies-gaining-ground-in-private-equity-50645295
[18] Fidrmuc, Jana P Peter Roosenboom, Richard Paap, and Tim Teunissen (2012). One Size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers. Journal of Corporate Finance, 18(4): 828-48.
[19] Gutierrez, Miguel, and Francisco Sastron (2017). Framework for a New Wave of IT-Enabled Business Process Transformations. In: Closing the Gap Between Practice and Research in Industrial Engineering (pp. 351-8). Cham: Springer.
[20] Hege, Ulrich, Stefano Lovo, Myron B. Slovin, and Marie E. Sushka (2005). What Is the Magic in Equity Deals? Theory and Evidence on the Means of Payment in Asset Sales. DOI:https://dx.doi.org/10.2139/ssrn.675944
[21] Hersh, Israel J. (2018). Private Equity Impact on Corporate Innovation. European Journal of Business and Management Research, 3(2): 5-11.
[22] Hiebl, Martin R.W. (2015). Agency and Stewardship Attitudes of Chief Financial Officers in Private Companies. Qualitative Research in Financial Markets, 7(1): 4-23.
[23] Jules, Claudy, Vik Krishnan, Vivek Pandit, and Jason Phillips (2021). A playbook for newly minted private equity portfolio-company CEOs. Available at: https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/a-playbook-for-newly-minted-private-equity-portfolio-company-ceos
[24] Kaplan, Steven, and Per Strömberg (2008). Leveraged Buyouts and Private Equity. Journal of Economic Perspectives, 23(1): 121-46.
[25] Kapoor, Rahul., and David J. Teece (2021). Three Faces of Technology’s Value Creation: Emerging, Enabling, Embedding. Strategy Science, 6(1): 1-4.
[26] Karupiah, Premalatha (2022). Positivism. In: Principles of Social Research Methodology (pp. 73-82). Singapore: Springer.
[27] Kosarchyn, Mariya (2023). Global Financial Cycle: Impact on Ukraine. Development Management, 22(4): 16-24. DOI: https://doi.org/10.57111/devt/4.2023.16
[28] Krysta, Peter M., Janina Jauch-Degenkolb, and Dominik K. Kanbach (2023). Barbarians Inside the Gates: How Private Equity Firms Create Value. Journal of Business Strategy, 44(6): 344-53.
[29] Lahmann, Alexander D.F., Wiebke Stranz, and Vivek K. Velamuri (2017). Value Creation in SME Private Equity Buy-Outs. Qualitative Research in Financial Markets, 9(1): 2-33.
[30] Lee, Kyle, Konstantin Synetos, and Claudia Zeisberger (2018). The Emergence of Long-Term Capital in Private Equity. Available at: https://www.insead.edu/sites/default/files/assets/dept/centres/gpei/docs/insead-isp-the-emergence-of-long-term-capital-in-private-equity-jun-2018.pdf
[31] Leleux, Benoît, Hans van Swaay, and Esmeralda Megally (2015a). The Future of Private Equity. In: Private Equity 4.0: Reinventing Value Creation (pp. 235-46). Hoboken: John Wiley and Sons, Inc.
[32] Leleux, Benoît, Hans van Swaay, and Esmeralda Megally (2015b). Value Creation in Private Equity. In: Private Equity 4.0: Reinventing Value Creation (pp. 69-102). Hoboken: John Wiley and Sons, Inc.
[33] Leslie, Phillip, and Paul Oyer (2009). Managerial Incentives and Value Creation: Evidence from Private Equity. DOI: https://dx.doi.org/10.2139/ssrn.1341889
[34] Loi, Anna (2023). Identification of Investment Attraction Strategies to Increase the Economic Potential of a Trading Enterprise. Economics, Entrepreneurship, Management, 10(1): 8-16. DOI:https://doi.org/10.56318/eem2023.01.008
[35] Lubbers, Reinder, J. Henk von Eije, and Wim Westerman (2015). Does Private Equity Stir up European Industries? DOI: https://dx.doi.org/10.2139/ssrn.2626078
[36] Moszoro, Marian (2014). The Math of Private Equity: 2/20, 3-on-5, and 1-in-8. DOI:https://dx.doi.org/10.2139/ssrn.2017764
[37] Mehdiyev, Vugar (2024). Harmonization of Capital Accounting in Azerbaijan Commercial Enterprises in Accordance with IFRS Requirements. Scientific Bulletin of Mukachevo State University. Series ‘Economics’, 11(1): 40-49. DOI: https://doi.org/10.52566/msu-econ1.2024.40
[38] Osisanwo, Bukonla Grace, Olukayode Emmanuel Maku, and Felix Odunayo Ajayi (2024). Effects of Trade and Financial Openness on Inflationary Pressure in Nigeria. Economics of Development, 23(1): 30-37. DOI:https://doi.org/10.57111/econ/1.2024.30
[39] Scharfman, Jason (2020). Private Equity Operations. In: Alternative Investment Operations: Hedge Funds, Private Equity, and Fund of Funds (pp. 113-31). Cham: Palgrave Macmillan.
[40] Tanklevska, N. et al. (2023). Financing of Ukrainian Agricultural Enterprises: Correlation-Regression Analysis. Scientific Horizons, 26(8): 127-39. DOI: https://doi.org/10.48077/scihor8.2023.127
[41] Teece, David J. (2018). Profiting from Innovation in the Digital Economy: Enabling Technologies, Standards, and Licensing Models in the Wireless World. Research Policy, 47(8): 1367-87.
[42] Tsvyetkov, Andriy, Valeriy Polyukhovych, and Svitlana Bychkova (2023). Legal Regulation of Banks with Foreign Capital in EU Legislation. Social and Legal Studios, 6(4): 233-42. DOI:https://doi.org/10.32518/sals4.2023.233
[43] Verbouw, Jeroen, Miguel L.C.J. Meuleman, and Sophie Manigart (2021). The Real Effects of Private Equity Buyouts: A Meta-Analysis. Academy of Management Proceedings (1): 14309.
[44] Wetzer, Thomas (2017). Papers on Value Creation in Private Equity. Bamberg: University of St. Gallen.
[45] Zahle, Julie (2021). Interpretivism and Qualitative Research. In: Stephen Turner and the Philosophy of the Social, pp. 202-20, Leiden: Brill.
[46] Zhang, Peng, Enyi Zhou, Yuyan Lei, and Junsong Bian (2021). Technological Innovation and Value Creation of Enterprise Innovation Ecosystem based on System Dynamics Modeling. Mathematical Problems in Engineering: 5510346.
[47] Zhang, Tingting, Can Lu, Edwin Torres, and Cihan Cobanoglu (2020). Value Co-Creation and Technological Progression: A Critical Review. European Business Review, 32(4): 687-707.
[2] Astalin, Prashant K. (2013). Qualitative Research Designs: A Conceptual Framework. International Journal of Social Sciences and Interdisciplinary Research, 2(1): 118-24.
[3] Åstebro, Thomas (2021). An Inside Peek at AI Use in Private Equity. Journal of Financial Data Science, 3(3): 97-107.
[4] Aziz, Waleed A. (2019). Business Process Reengineering Impact on SMEs Operations: Evidence from GCC Region. International Journal of Services and Operations Management, 33(4): 545-62.
[5] Bakhtiyari, Mehrsa (2019). Business Process Management, Business Process Reengineering and Business Process Innovation. DOI: https://doi.org/10.22541/au.157255517.73053404
[6] Barber, Felix (2008). The Strategic Secret of Private Equity. Strategic Direction, 24(2). DOI:https://doi.org/10.1108/sd.2008.05624bad.003
[7] Bratton, William W. (2008). Private Equity’s Three Lessons for Agency Theory. Brooklyn Journal of Corporate, Financial and Commercial Law 3(1). Available at: https://brooklynworks.brooklaw.edu/cgi/viewcontent.cgi?article=1132andcontext=bjcfcl
[8] Candasamy, Murugessen, and Bhavish Jugurnath (2015). An Empirical Analysis of the Determinants of the Performance of the Global Private Equity Funds Markets. Journal of Modern Accounting and Auditing, 11(11): 581-95.
[9] Casalino, Lawrence P., Rayhan Saiani, Sami Bhidya, Dhruv Khullar, and Eloise O'Donnell (2019). Private Equity Acquisition of Physician Practices. Annals of Internal Medicine, 170(2): 114-5.
[10] Caselli, Stefano (2010). Strategies, Business Models, and Perspectives Of Private Equity and Venture Capital. In: Private Equity and Venture Capital in Europe: Markets, Techniques, and Deals (pp. 279-96). Cambridge: Academic Press.
[11] Chen, Huayi, and Ma Tieju (2017). Optimizing Systematic Technology Adoption with Heterogeneous Agents. European Journal of Operational Research, 257(1): 287-96.
[12] Cohn, Jonathan B., Edith S. Hotchkiss, and Erin M. Towery (2022). Sources of Value Creation in Private Equity Buyouts of Private Firms. Review of Finance, 26(2): 257-85.
[13] da JLPF Cardoso, Rebentisch, E.S., Rhodes, D.H., and Soares, A.L. (2022). Value of Concept of Operations Analysis for Digital Transformation Using Digital Twins. Product Management and Development, 20(2). DOI:http://dx.doi.org/10.4322/pmd.2022.023
[14] Darby, Jessica L., Brian S. Fugate, and Jeff B. Murray (2019). Interpretive Research: A Complementary Approach to Seeking Knowledge in Supply Chain Management. International Journal of Logistics Management, 30(2): 395-413.
[15] Davis, Steven J., John Haltiwanger, Kyle Handley, Ron Jarmin, Josh Lerner, and Javier Miranda (2014). Private Equity, Jobs, and Productivity. American Economic Review, 104(12): 3956-90.
[16] Ebrahimi, Mahshid (2019). Adoption of New Technology: In Private and Public Organizations of Developing Countries. In: Private Sector Innovations and Technological Growth in the MENA Region. Pennsylvania: IGI Global. DOI: https://doi.org/10.4018/978-1-5225-7086-8.ch001
[17] Farman, Madeleine (2019). Long-Term Fund Strategies Gaining Ground in Private Equity. Available at: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/long-term-fund-strategies-gaining-ground-in-private-equity-50645295
[18] Fidrmuc, Jana P Peter Roosenboom, Richard Paap, and Tim Teunissen (2012). One Size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers. Journal of Corporate Finance, 18(4): 828-48.
[19] Gutierrez, Miguel, and Francisco Sastron (2017). Framework for a New Wave of IT-Enabled Business Process Transformations. In: Closing the Gap Between Practice and Research in Industrial Engineering (pp. 351-8). Cham: Springer.
[20] Hege, Ulrich, Stefano Lovo, Myron B. Slovin, and Marie E. Sushka (2005). What Is the Magic in Equity Deals? Theory and Evidence on the Means of Payment in Asset Sales. DOI:https://dx.doi.org/10.2139/ssrn.675944
[21] Hersh, Israel J. (2018). Private Equity Impact on Corporate Innovation. European Journal of Business and Management Research, 3(2): 5-11.
[22] Hiebl, Martin R.W. (2015). Agency and Stewardship Attitudes of Chief Financial Officers in Private Companies. Qualitative Research in Financial Markets, 7(1): 4-23.
[23] Jules, Claudy, Vik Krishnan, Vivek Pandit, and Jason Phillips (2021). A playbook for newly minted private equity portfolio-company CEOs. Available at: https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/a-playbook-for-newly-minted-private-equity-portfolio-company-ceos
[24] Kaplan, Steven, and Per Strömberg (2008). Leveraged Buyouts and Private Equity. Journal of Economic Perspectives, 23(1): 121-46.
[25] Kapoor, Rahul., and David J. Teece (2021). Three Faces of Technology’s Value Creation: Emerging, Enabling, Embedding. Strategy Science, 6(1): 1-4.
[26] Karupiah, Premalatha (2022). Positivism. In: Principles of Social Research Methodology (pp. 73-82). Singapore: Springer.
[27] Kosarchyn, Mariya (2023). Global Financial Cycle: Impact on Ukraine. Development Management, 22(4): 16-24. DOI: https://doi.org/10.57111/devt/4.2023.16
[28] Krysta, Peter M., Janina Jauch-Degenkolb, and Dominik K. Kanbach (2023). Barbarians Inside the Gates: How Private Equity Firms Create Value. Journal of Business Strategy, 44(6): 344-53.
[29] Lahmann, Alexander D.F., Wiebke Stranz, and Vivek K. Velamuri (2017). Value Creation in SME Private Equity Buy-Outs. Qualitative Research in Financial Markets, 9(1): 2-33.
[30] Lee, Kyle, Konstantin Synetos, and Claudia Zeisberger (2018). The Emergence of Long-Term Capital in Private Equity. Available at: https://www.insead.edu/sites/default/files/assets/dept/centres/gpei/docs/insead-isp-the-emergence-of-long-term-capital-in-private-equity-jun-2018.pdf
[31] Leleux, Benoît, Hans van Swaay, and Esmeralda Megally (2015a). The Future of Private Equity. In: Private Equity 4.0: Reinventing Value Creation (pp. 235-46). Hoboken: John Wiley and Sons, Inc.
[32] Leleux, Benoît, Hans van Swaay, and Esmeralda Megally (2015b). Value Creation in Private Equity. In: Private Equity 4.0: Reinventing Value Creation (pp. 69-102). Hoboken: John Wiley and Sons, Inc.
[33] Leslie, Phillip, and Paul Oyer (2009). Managerial Incentives and Value Creation: Evidence from Private Equity. DOI: https://dx.doi.org/10.2139/ssrn.1341889
[34] Loi, Anna (2023). Identification of Investment Attraction Strategies to Increase the Economic Potential of a Trading Enterprise. Economics, Entrepreneurship, Management, 10(1): 8-16. DOI:https://doi.org/10.56318/eem2023.01.008
[35] Lubbers, Reinder, J. Henk von Eije, and Wim Westerman (2015). Does Private Equity Stir up European Industries? DOI: https://dx.doi.org/10.2139/ssrn.2626078
[36] Moszoro, Marian (2014). The Math of Private Equity: 2/20, 3-on-5, and 1-in-8. DOI:https://dx.doi.org/10.2139/ssrn.2017764
[37] Mehdiyev, Vugar (2024). Harmonization of Capital Accounting in Azerbaijan Commercial Enterprises in Accordance with IFRS Requirements. Scientific Bulletin of Mukachevo State University. Series ‘Economics’, 11(1): 40-49. DOI: https://doi.org/10.52566/msu-econ1.2024.40
[38] Osisanwo, Bukonla Grace, Olukayode Emmanuel Maku, and Felix Odunayo Ajayi (2024). Effects of Trade and Financial Openness on Inflationary Pressure in Nigeria. Economics of Development, 23(1): 30-37. DOI:https://doi.org/10.57111/econ/1.2024.30
[39] Scharfman, Jason (2020). Private Equity Operations. In: Alternative Investment Operations: Hedge Funds, Private Equity, and Fund of Funds (pp. 113-31). Cham: Palgrave Macmillan.
[40] Tanklevska, N. et al. (2023). Financing of Ukrainian Agricultural Enterprises: Correlation-Regression Analysis. Scientific Horizons, 26(8): 127-39. DOI: https://doi.org/10.48077/scihor8.2023.127
[41] Teece, David J. (2018). Profiting from Innovation in the Digital Economy: Enabling Technologies, Standards, and Licensing Models in the Wireless World. Research Policy, 47(8): 1367-87.
[42] Tsvyetkov, Andriy, Valeriy Polyukhovych, and Svitlana Bychkova (2023). Legal Regulation of Banks with Foreign Capital in EU Legislation. Social and Legal Studios, 6(4): 233-42. DOI:https://doi.org/10.32518/sals4.2023.233
[43] Verbouw, Jeroen, Miguel L.C.J. Meuleman, and Sophie Manigart (2021). The Real Effects of Private Equity Buyouts: A Meta-Analysis. Academy of Management Proceedings (1): 14309.
[44] Wetzer, Thomas (2017). Papers on Value Creation in Private Equity. Bamberg: University of St. Gallen.
[45] Zahle, Julie (2021). Interpretivism and Qualitative Research. In: Stephen Turner and the Philosophy of the Social, pp. 202-20, Leiden: Brill.
[46] Zhang, Peng, Enyi Zhou, Yuyan Lei, and Junsong Bian (2021). Technological Innovation and Value Creation of Enterprise Innovation Ecosystem based on System Dynamics Modeling. Mathematical Problems in Engineering: 5510346.
[47] Zhang, Tingting, Can Lu, Edwin Torres, and Cihan Cobanoglu (2020). Value Co-Creation and Technological Progression: A Critical Review. European Business Review, 32(4): 687-707.
Published
2024-06-28
How to Cite
LIEPERT, Maximilian.
Leveraging Technology: Enhancing Operations and Boosting EBITDA in Private Equity Owned Portfolio Companies.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 15, n. 2, p. 186-195, june 2024.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/8459>. Date accessed: 22 nov. 2024.
doi: https://doi.org/10.14505/tpref.v15.2(30).03.
Section
Articles
Non-Exclusive License under Attribution 4.0 International Public License (CC BY 4.0):
This ‘Article’ is distributed under the terms of the license CC-BY 4.0., which lets others distribute, remix, adapt, and build upon this article, even commercially, as long as they credit this article for the original creation. ASERS Publishing will be acknowledged as the first publisher of the Article and a link to the appropriate bibliographic citation (authors, article title, volume issue, page numbers, DOI, and the link to the Published Article on ASERS Publishing’ Platform) must be maintained.