How Private Equity is Mandating Change

Enterprise software companies and ISVs have demonstrated incredible resilience during the pandemic with the deployment of playbooks designed to adapt and accelerate recovery. These software companies are evolving by realigning their product portfolio to meet future customer demand, offloading unprofitable assets, and driving their digital transformation initiatives. Software companies across the world are accelerating product development by leveraging digital capabilities such as Artificial Intelligence (AI), Machine Learning (ML), automation (RPA and Low Code/ No Code), Big Data and analytics, and Cloud-native technologies to deliver best in class customer experiences and efficient maintenance. Eager for growth, private equity (PE)- owned software companies are leading this trend. With fresh fund infusions through primary/secondary buyouts or recapitalization they are mandating product innovations, modernizing existing product suites, expanding platforms to include new products and scaling engineering, product and GTM teams. For example, one of the focuses of software companies has been building AI capabilities into existing products as well as new developments of AI/ML-enabled products to drive product acceleration. Incidentally, AI companies raised a record $33B in equity funding in 2020. As commercial applications of AI and automation scale rapidly, enterprise software companies are looking to overhaul to become digital-first. With deep change management experience, PE firms traditionally deploy a distinct set of value levers across growth, cost and product strategies for enterprise software companies to generate higher returns. Zinnov has investigated over 100 PE software exits on the different value creation levers they applied to unlock value from their enterprise software investments. Revenue Enhancement was found to be pivotal in unlocking value, used in a greater number of deals compared to other levers, such as working capital and cost optimization, capital efficiency and tax optimization. Digging deeper, product acceleration (in portfolio expansion and modernization) takes a comparatively low time to create an impact in unlocking value, while being easy to medium in ease of execution, when compared to the other drivers of revenue enhancement.

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Identifying Value Creation Levers

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Venture Capital Investments In Enterprise Software

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Table of contents

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Top 5 drivers of Revenue Enhancement

Zinnov tracks over 70 transformational levers used by PE firms to unlock value in their investments. Over half of them require some level of collaboration with ecosystem partners to unlock value. In studying PE software exits between 2017 and 2020, it was observed that:

Over 70 levers used by PE firms to unlock value in enterprise software portfolio companies

Source: Zinnov and Persistent. No part of this whitepaper/report may be quoted, reproduced or circulated without the explicit written approval from Zinnov or Persistent.

How Private Equity is Mandating Change

5 minute read

Revenue Enhancement was found to be pivotal in unlocking value, used in a greater number of deals compared to other levers, such as working capital and cost optimization, capital efficiency and tax optimization. Digging deeper, product acceleration (in portfolio expansion and modernization) takes less time comparatively, to create an impact in unlocking value, while being easy to medium in ease of execution.

Enterprise software companies and ISVs have demonstrated incredible resilience during the pandemic with the deployment of playbooks designed to help organizations adapt and to accelerate recovery. These software companies are evolving by realigning their product portfolios to meet future customer demand, offloading unprofitable assets, and driving their digital transformation initiatives. Meanwhile, software companies across the world are accelerating product development by leveraging digital capabilities such as Artificial Intelligence (AI), Machine Learning (ML), automation (RPA and Low Code/No Code), big data and analytics, and cloud-native technologies to deliver best in class customer experiences and efficient maintenance. Eager for growth, private equity (PE) — owned software companies are leading this trend. With fresh fund infusions through primary/secondary buyouts or recapitalization they are mandating product innovations, modernizing existing product suites, expanding platforms to include new products and scaling engineering, product and GTM teams. For example, one of the focuses of software companies has been building AI capabilities into existing products as well as new developments of AI/ML-enabled products to drive product acceleration. Incidentally, AI companies raised a record $33B in equity funding in 2020. As commercial applications of AI and automation scale rapidly, enterprise software companies are looking to overhaul to become digital-first. With deep change management experience, PE firms traditionally deploy a distinct set of value levers across growth, cost and product strategies for enterprise software companies to generate higher returns. Zinnov has investigated over 100 PE software exits on the different value creation levers they applied to unlock value from their enterprise software investments. Revenue Enhancement was found to be pivotal in unlocking value, used in a greater number of deals compared to other levers, such as working capital and cost optimization, capital efficiency and tax optimization. Digging deeper, product acceleration (in portfolio expansion and modernization) takes less time comparatively, to create an impact in unlocking value, while being easy to medium in ease of execution.

\ Portfolio companies with robust developer relations and matured partner programs in digital ecosystem offer promising returns

\ Enterprise software companies with globalised R&D locations (i.e., having primary engineering and R&D location outside US) attract higher exit multiples

Next steps

Private equity offerings

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Join a leadership roundtable

Register for an upcoming PE leadership virtual roundtable to discuss value creation strategies with other PEs and portfolio companies

Speak with an expert

Schedule a one-on-one discussion with our leaders who can help you identify value levers

\ Portfolio companies generate higher returns through product modernization by incorporating advanced digital capabilities such as AI/ML, automation, cloud computing and IoT

Next steps

Private equity offerings

See how Persistent can help you drive transformational value within your portfolio companies

Learn More

Join a leadership roundtable

Register for an upcoming PE leadership virtual roundtable to discuss value creation strategies with other PEs and portfolio companies

Speak with an expert

Schedule a one-on-one discussion with our leaders who can help you identify value levers