SAP America: Leveraging technology for transparency and efficiency

This article is sponsored by SAP America.

To what extent are mid-market private equity firms effectively employing technologies to help them source deals?

Private equity firms are beginning to realise the importance of technology in order to scale effectively. Due diligence, in particular, is ripe for digitalisation. While some firms have tried building their own tools in-house, it’s essential to strike a balance between having the tools and insights necessary to run the systems and the experience to interpret the technology’s output to make informed business decisions that align with the investment thesis.

Mid-market organisations are created from either organic growth or through the divestiture of a division from a large enterprise. With 60 percent of all the M&As touching an SAP system, we have access to those large customers and their internal systems, meaning we can provide transparency and identify inefficiencies that the buyer may need to address as they look to create value during their holding period.

That transparency provides incremental trust between the buyer and seller, shortens the due diligence process and allows for the value creation agenda to start at time of close.

How is SAP getting involved in mid-market M&A processes?

The SAP Midmarket Strategic Initiatives team has developed a value network for growth through the orchestration of private equity, advisory and the SAP M&A Ambassadors. Advisory firms and private equity firms are working with this team to identify potential acquisition targets that fit within the fund strategy. The team is now developing new routes to market and different forms of deal origination for private equity firms and for the advisory firm to support across the investment lifecycle. We can help bring together organisations that might not have connected otherwise in traditional deal origination methods and leveraging technology and relationship capital to find new investment opportunities. This approach could potentially lead to a significant increase in the number of deals that firms are able to close, and further drive the growth of the private equity industry.

How does this help create value for the seller?

Business process insights that are backed by clear and specific data, across every line of business, provide the transparency and visibility during the diligence process. During the hold period, we have the technology, SAP Signavio, to continually monitor those business processes and measure the impact of the investments made in alignment to industry best practices. We then incorporate a digital assistant, SAP Enable Now, to support the management teams and employees to execute processes as designed. The use of the digital assistant increases the employee talent pool that a portfolio company can hire due to the fact they are less reliant on specific industry or technology backgrounds.

Upon exit, the seller now has a platform of growth, a clear picture of the investments they have made to the business, and identification of the remaining areas of improvement that a buyer can invest in to achieve their returns, while not having to part with critical employees that can be reassigned to strategic areas of the business and reduce TSA times. By leveraging technology and expertise, we help sellers navigate the complexities of due diligence and identify potential buyers, ultimately creating value for all parties involved.

How can a more transparent diligence process help pinpoint potential areas for future growth within a business?

The identification of business process improvements allows for the buyer to address inefficiencies and create incremental value, such as improving operations, fixing supply chain issues, or identifying additional M&A opportunities. 

However, it is also important to consider the human element in M&A. While implementing technology may initially improve operations, it is crucial to ensure that team members are effectively utilising the tools and processes in the long term. To address this, incorporating a digital assistant that provides guidance and direction can help ensure that team members are executing according to the investment thesis.

Overall, the combination of a holistic approach to technology implementation and supporting tools and processes can provide businesses with the transparency and efficiency necessary for successful investment and increased valuation.

How does this align with industry best practice?

SAP S/4 Hana Cloud is designed with industry best practices built in. We offer detailed guidance on how to optimise different lines of business and processes specific to each industry. Mid-market organisations are obtaining a clear roadmap for execution, greater visibility into their business operations and achieving rapid growth at scale. 

Our platform enables users to identify and address issues that might be impeding their business growth, whether they relate to people, training, technology or business processes. Increasingly, business users are leveraging robotic process automation and machine learning to streamline and improve their workflows through the SAP Business Transformation Platform.

How can the growth network help with this process?

We have developed the value network for growth comprised of two principal components that cater to private equity firms. The first component is the SAP Technical Advisory Program for selection and advisory firms. We invest the time and resources to provide them with a comprehensive understanding of the market trends, industry best practices and the capabilities of our solutions. We acknowledge that certain services are outside our solutions and these firms possess the expertise to achieve the collective outcome. Hence, we are devising new routes to market for them to access new customers in a force multiplier approach. 

The second component is the SAP M&A Ambassadors, our specific network of partners, who provide a prompt response to M&A events. Together, these two components cater to the requirements of private equity firms, thereby creating a value network for growth by leveraging their experience and resources to execute on the investment thesis.

Nick Maglaris is vice-president of Midmarket Strategic Initiatives at SAP America