Interim CIO: Dr. Claus Michael Sattler
Private equity and IT, OT, data analytics
The current challenges faced by private equity companies when integrating acquired companies into existing IT structures
Just a few days ago, a private equity manager told me the following:
“As a private equity manager, I face exciting challenges every day, especially when it comes to integrating newly acquired companies. In the rapidly changing business world of 2024, IT (information technology), OT (operational technology, i.e. the company’s machine if it is a manufacturing company) and DA (data analytics) are playing an increasingly important role.“
In this blog post, I would like to give you an insight into the world of private equity companies and explain from my perspective as an interim CIO what these companies are currently dealing with in particular from an IT, OT and DA perspective.
The changing M&A landscape
The world of mergers and acquisitions is undergoing profound change. As private equity firms, they must constantly adapt to the new circumstances of companies, markets, cultures and political conditions in order to remain competitive. One trend that will dominate the private equity industry in 2024 is the continued focus on technological innovation and digitalization[source: 1] as well as digital transformation.
When integrating acquired companies, the new investors are often faced with the challenge of merging different IT systems and digital infrastructures with the existing ones. This is no easy task, as many companies have their own, often outdated systems. “The harmonization of these systems is crucial for smooth operations and the realization of synergies,” I know from my work as interim CIO, interim CTO and / or interim CDO.
IT challenges during integration
One of the biggest challenges in IT integration is creating a standardized digital environment. This often involves the migration of standard applications (such as ERP, CRM and MES), data, the adaptation of software solutions and the training of employees in new systems. Cybersecurity must always be kept in mind, as transition phases can often reveal weaknesses in IT security. This is a challenge that should not be underestimated, especially for companies that fall under the Kritis and NIS2 regulations.
Another important aspect is cloud integration or the hybrid operation of on-premise solutions in the company and cloud-based solutions. The flexible use of cloud resources offers companies new opportunities, but also presents them with challenges[source: 2]. Private equity companies must ensure that the cloud strategies of integrated companies are compatible and comply with EU and national data protection regulations within the EU.
OT integration: the often overlooked challenge
While IT is often in the spotlight, the integration of OT systems (machines, machine controls, sensors, visualization systems) is often underestimated. OT encompasses the hardware and software used to monitor and control physical devices and processes. This is particularly critical and challenging when integrating production companies.
The challenge lies in the fact that OT systems are often older and less flexible than modern IT systems. They are also often heavily customized to specific production processes. Integrating these systems requires not only technical expertise, but also a deep understanding of the operational processes of the newly acquired company.
Data analytics: the key to value creation
In the world of private equity, the ability to create value is crucial. This is where data analytics additionally comes into play. Integrating data analytics capabilities across different companies can unlock tremendous value, but presents complex challenges for all involved.
One of the main difficulties is to consolidate and harmonize data from different sources when relying on old solution structures such as data warehouses, data lakes or data virtualization. This often requires the development of new data models and the implementation of data governance structures. In addition, companies must ensure that the data analysis tools are capable of handling the often enormous volumes of data. Knowledge of modern real-time solutions, such as Enterprise Data Fabric or Smart Data Fabric, is only available to a limited extent on the European market.
Sustainability and ESG: a new dimension of integration
Another trend influencing our integration strategies is the growing focus on sustainability and ESG (Environmental, Social, Governance) factors. It is expected that M&A activities in 2024 and beyond will reflect the growing importance of sustainability[source: 1].
When integrating acquired companies, private equity companies must now also consider and harmonize their ESG profiles. This may require the implementation of new systems for monitoring and reporting ESG metrics, which in turn presents IT and data analytics challenges.
The way forward
Given these challenges, it is more important than ever to take a strategic and holistic approach to business integration. Private equity companies need to view information technology, operational technology and data analytics not as separate areas, but as integrated parts of an overall system.
Investments by private equity companies in technology and specialists are crucial or can be quickly replaced or supplemented by interim managers. Private equity firms need teams with diverse skill sets that bring both technical know-how and a deep understanding of business processes. They must also remain flexible and be prepared to constantly adapt their integration strategies to keep pace with rapid technological change.
The integration of companies into private equity structures remains a complex task. But with the right approach and a focus on IT, OT and data analytics, these companies can not only overcome challenges, but also create significant value for their investors and the integrated companies. The future may be uncertain, but one thing is certain: the ability to successfully manage technology integration will remain a critical success factor in the private equity industry.
Sources
[1] https://bovemontero.com/de/2024/01/29/untersuchung-der-wichtigsten-ma-trends-fuer-2024/
[3] https://www.solutio.ag/drei-schlu%CC%88sselthemen-fu%CC%88r-private-equity-in-the-year-2024/
[4] https://www.mcgradyclarke.com/de/news-insights/nachhaltigkeitsausblick-fur-private-equity-2024/
[5] https://www.pwc.de/de/private-equity/private-equity-trend-report.html
[6] https://www.vc-magazin.de/blog/2024/11/13/herausforderungen-und-perspektiven-fuer-die-zukunft/
Image: chatGPT.com
More articles on "Private equity"
Dr. Claus Michael Sattler
