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Factors Private Equity Portfolio Companies Should Take Into Account When Investing in ERP Systems

02.26.2019

Private equity firms often require that the businesses they invest in update their ERP software to the latest version or replace obsolete packages. Below are some of the most common concerns private equity firms look to address when considering investments in ERP systems.

  1. Room for Growth: Mergers and Acquisitions
  2. Financial Visibility and Reporting
  3. Implementation Costs
  4. Functionality
  5. 24/7 ERP Accessibility

Room for Growth: Mergers and Acquisitions

Often, private equity portfolio companies are in a high acquisition and growth mode. In these cases, each acquisition is likely to host its own data that must be imported into a new, custom-built ERP system. This can be an incredibly slow process, taking a month or more to complete. Sometimes the acquired company’s ERP system is kept in place requiring multiple ERP systems to be supported. In addition, training is needed for the employees of the acquired company on the current ERP system. The need for one platform that can handle the growth process is needed. If the portfolio company is in high acquisition mode, a cloud-based ERP system may provide a quick solution without the need for reviewing or purchasing any computer hardware. The only potential additional cost incurred is for additional licenses.

Financial Visibility and Reporting

Private equity firms often request reports be generated and sent for review quickly. They don’t want to rely on an in-house IT department to create or generate the report, which can take days to complete. The ability to easily customize financial reports without relying on Excel to export data is becoming more of a necessity than ever. Private equity firms should also make sure that the current ERP allows for drill down capability to the transaction level from financial statements. In addition, role-based dashboards for real-time information at the click of a mouse or by using a mobile app is a valuable capability.

Implementation Costs

Some ERP vendors have a reputation for exceeding implementation budgets. Others offer fixed-price or not-to-exceed implementation costs, though this is unusual to find. To determine if the estimated implementation costs are accurate, it’s important to review services and license costs. Based on the complexity of the ERP requirements and the vendors involved in a selection process, for every $1 of licenses, a reasonable service estimate is between $1-$2. Tier 1 ERP packages can be as high as $5 of services for every $1 of software. If the vendor is lower than this range, they may have underpriced the implementation services. If the number is higher than this range, the vendor may have overpriced the implementation.

Functionality

As businesses grow and evolve, so should ERP solutions. If a solution remains static, it will restrict the ability of the business to increase profits. The ERP provider that is selected should not only deliver all your functional needs today, but also have the right strategy in place to allow their customers to leverage the latest technology and functionality. The provider should also be committed to its own software’s evolution, investing maintenance dollars into its product. In addition, they should have in-house industry experts that are continuously studying market trends and requirements. Review the software vendor’s roadmap to understand the software vendor’s vision of the future.

24/7 ERP Accessibility

As a private equity firm, there is nothing more important than to have access to data at any moment. Whether it’s checking on the progress of key critical business processes or key management information, private equity firms should pursue ERP systems that can be accessed 24/7 by either a web browser or any mobile device. Being able to work remotely while at home or on the road is a great benefit with the latest ERP systems.

If your private equity firm is in need of software selection services, or you are considering acquiring a business that might be, please contact Henry Struckel, Advisory Services Manager, at hstruckel@bswllc.com or 314.824.5285.

To learn more about our services for the private equity industry, contact Bryan Graiff, Private Equity Industry Group Leader at bgraiff@bswllc.com or 314.983.1390.

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