CAPITAL FUND ACQUISITIONS RAISE THE DIGITAL BAR
Capital funds have become an increasingly visible and defining factor in Danish business life. Both as an important source of capital, but also as a driving force in the development of companies’ management, efficiency, and operations. This puts the right digital support on top of the agenda.
According to partner in exacto, Peter Nørvig, capital funds' entry into companies places increased demands on the transparency and quality of the information provided to the new ownership group - and on the speed with which key figures can be effectively reported:
"This is something that really boosts digitization. Not least to counter the trend demanding that decisions must be data-driven".
Optimization & value addition
Capital funds typically have two types of companies in scope: Start-up companies which they assess have a potential for future growth, and well-established companies that are facing a ‘generational change’ and have unrealized potential.
According to Peter Nørvig, the acquisition of the latter involves the capital fund actively stepping in and carrying out a restructuring of the company:
"When capital funds make acquisitions, it is done on the basis of an assumption of being able to secure the company a better positioning and consolidation in the market and thereby increase its value; this with the perspective of a sale with profit after a period of between 3 and 7 years. To realize this, a capital fund will typically carry out active ownership on several fronts. It could be by strengthening management skills, partly via the appointment of a professional management and ditto board, where the capital fund itself is represented", Peter Nørvig explains.
As a result of this, there is often a need for a rapid implementation of digital solutions that support the information demands of the new owners and provide the necessary insights:
"The transition to a professionalized management and active ownership imposes stricter requirements on the company's reporting and thus the digital support. To be able to exercise the necessary active ownership and carry out the strategic adjustments, the new management must have access to the relevant information – and preferably quickly. Better financial management must be implemented, with a keen eye on improving management reporting and forecasts and a special focus on the liquidity budget, both the short- and long-term”.
Capital funds often pay special attention to owner-managed companies. According to Peter Nørvig, an acquisition of this type of company serves as a representative case:
"Owner-managed companies often have a history with a founder who continues to serve as director and who has managed the company's finances since its establishment. Possibly in a somewhat ad hoc and handheld way. You may say that as long as the books looked OK and the accounts balanced, everything was fine", explains Peter Nørvig, but emphasizes that this is not the case after an acquisition by a capital fund, which will typically prioritize quick rollout of new digital tools:
"Optimizing the company's business, better positioning in the market with increased competitiveness and an improvement of margins requires transparency and detailed insights into performance throughout the entire value chain. Detailed insights that are continuously updated on the basis of realized figures. A continuous and up-to-date reporting of performance gives the professional management the ability to carry out the necessary strategic and operational adaptations quickly without a decelerating latency. This requires digital support that both delivers simple workflows and access, and fast and efficient reporting on relevant financial key figures”.
Transparency, responsibility & ownership
"In order to realize the new requirements, without creating unnecessary unrest in an organization that is already undergoing change, the new reporting must be implemented quickly. And preferably so that it integrates with the company's other IT systems.
If one uses the technology that is already present in the company, one can quickly build robust systems that can be immediately rolled out in the company with a minimum of change management - This creates the desired effect quickly and without a need for big investments. The relevant people immediately get access to the relevant information and can generate new insights and gain ownership within the organization of their business area. This means that a higher degree of individual ownership of performance is established, which is a driving factor for increased productivity", explains Peter Nørvig, and concludes:
"The transformation of an owner-managed company with an one-man army consisting of the founder, to an enterprise managed by a professionalized management conducting active ownership is used here somewhat caricatured. Nevertheless, it works well to illustrate which prerequisites apply to be able to ensure ongoing optimization and maintenance of a company's competitiveness. The keyword is insight and data. Decisions must be data-driven, and this data must both provide a complete picture of the entire company's performance and always be robust, up-to-date, and therefore trustworthy".