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5 Reasons Private Equity Firms Should Embrace ERP Systems

5 Reasons Private Equity Firms Should Embrace ERP Systems

In 2020, private equity companies began embracing special purpose acquisition companies (or SPACs). These entities, which have no commercial operations and are formed specifically to raise money for acquisitions, raised more than $80 billion from nearly 250 SPAC IPOs during 2020, six times the previous high of $13 billion raised in 2019. 

The SEC’s evolving reporting requirements have slowed SPAC adoption in recent months, but market shifts like this are just one example of how PE firms continuously guard against economic uncertainty and risk as they plot exit strategies for their portfolio companies.

To overcome operational challenges and maximize the potential of their portfolio companies, private equity firms need accurate and comprehensive data on financial health. 

However, many still rely on disconnected software and spreadsheets that ultimately hampers their scalability and efficiency.

On the flip side, Enterprise Resource Planning (ERP) systems offer a standardized solution for PE-backed businesses. This white paper, “How ERP Can Help PE Firms Standardize Their Portfolio Operations - Business Guide from Netsuite goes in-depth on how ERP systems are advantageous for private equity portfolios.

We’ve distilled it down to the top five reasons why ERPs should be considered:

No. 1: Easier Exits

  • ERP systems provide a clear view of a company's performance, forecasts, and ability to meet demands. In short, they can facilitate informed decision-making.
  • The due-diligence process can be simplified. Because all the information is in one central hub, ERPs provide an accurate assessment and valuation of portfolio companies during exits.

No. 2: Standardized Business Processes Portfolio-Wide

  • Standardization across a portfolio enhances cost measurement, operational efficiency, and profitability.
  • An ERP enables consistent health and performance assessments, informed decision-making, and unified reporting.

No. 3: Reduced Risk

  • ERP systems offer robust data security, role-based system access, and compliance controls, ensuring accurate and secure data handling.
  • Reduces IT maintenance efforts and eases governance and compliance processes.

No: 4: Rapid Expansion

  • ERP software provides a foundation for managing growth, offering capabilities for managing multiple product lines, adapting to supply-chain changes, and facilitating smooth onboarding of acquisitions or new subsidiaries.
  • Cloud-based ERP systems enable global expansion with minimal IT infrastructure requirements.

No: 5: Reduced Financial Close Period and Audit Preparation

  • ERP systems provide real-time data, simplifying financial closing processes and significantly reducing the time required for book closing.
  • Comprehensive control over roles, assignments, and permissions ensures data integrity and auditability.
Read the full white paper to go deeper on how standardizing a portfolio on a common ERP system significantly boosts a PE firm’s ability to measure costs, track growth, improve operational efficiency and reach profitability goals. It also provides guidance on choosing the right ERP for your organization.

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