A QUALIFIED OPINION
Kelley Powell CEO and Partner, MacLaurin Group Kelley Powell is CEO and partner of MacLaurin Group, a technology operating partner for private equity portfolios. She has served on executive teams for multiple private equity investments and is the best-selling author of “Courage to Lose Sight of Shore: How to Partner with Private Equity to Grow Your Business with Confidence.” Powell serves as board member of ACG Richmond, KAYO private equity guide and host of MacLaurin Group’s Intimate Conversation series.
“PE FIRMS WOULD BE BEST SERVED TO TREAT TECHNOLOGY DUE DILIGENCE WITH THE SAME IMPORTANCE AS FINANCIAL DUE DILIGENCE.”
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How should private equity firms approach technology due diligence?
The key to a good private equity partnership is relationships. How PE firms and their operating partners interact with companies prior to a transaction is a litmus test for how everyone will engage post-transaction. Technology due diligence is no different. Technology due diligence should not be scary, complicated or hard. Rather, it should be framed as an opportunity and investment to understand an acquisition target’s existing technology, the growth you want to achieve, and how to get there together. Technology due diligence should allow for much more than running down a list of questions in a spreadsheet. If a PE firm is sending in a technical team for diligence with no guidance as to what they plan to do with the company if successful, then they are getting little to no value out of that spending. For example, if you plan on increasing the sales of the company, ask yourself if the existing technology platform will scale to support the planned growth. What if there is a new product idea you plan to build or bolt on—can the platform cope? Do you understand the investment lift needed to build out business
analytics? If you determine that your investment thesis requires significant investment in technology in order to achieve it, then far better to have a handle on the required investment prior to the close of the transaction than after the fact.
What impact can technology have in achieving growth or scale for a portfolio company?
It depends on the company. One size does not fit all. Technology is generally the key to successful growth and scalability of a company. Yet, it is often not considered early enough in the process. PE firms would be best served to treat technology due diligence with the same importance as financial due diligence. While any issues found can usually be solved, they almost always take longer and are more expensive than expected. Allowing time for technology due diligence early in the process will determine the true value of a deal. With many of our technology due diligence engagements, we are often told the company is “in the cloud.” We take the “trust but verify” attitude and perform a detailed look anyway, and we seldom find a setup without opportunity for improvement. Cloud architecture takes more than opening an account on Azure/AWS and deploying some servers.
5/20/21 10:27 AM