Home Private Equity With A Recession Underway, Private Equity Firms Need To Act Smartly, Not...

With A Recession Underway, Private Equity Firms Need To Act Smartly, Not Rashly, To Succeed


A recession is now underway which, according to the Bank of England, could be the longest since records began. This will be weighing heavy on the minds of PE Firms in the UK and across the globe, particularly if they’ve made investments in companies or industries that stand to be hit by the economic downturn.

Generally, the inclination amongst many PE organisations when faced with a looming recession is to make cutbacks in their portfolio companies where possible to improve organisational efficiencies: for example, tightening budgets or delaying investments until the economic landscape begins to improve. While this may seem like a logical response when times are hard, reducing or postponing funding can have a detrimental effect on firms.

Indeed, cost-cutting measures have the potential to hamper the portfolio company’s offering. If their customers have come to expect a certain standard of offering from a business and the previous service is reduced in its efficiency or quality, they risk losing those customers and revenue, potentially causing more harm than good in the long term, which will have a detrimental effect on the PE firm making a profit when they sell the business down the line.

To reduce the risk of this happening, rather than following the consensus and making cutbacks when faced with a recession, now is the time for PE companies that want to get ahead of the game to be making incremental investments into technology and processes. To do this, the question firms need to ask is what technologies should they be investing in to improve the services and processes of their portfolio companies? There are multiple answers to this question in that there are several strategies that can help their businesses grow and thrive in the face of recession, including the following.

Leave on-premise behind for good

Firstly, the portfolio companies that are still operating with on-premise solutions need to finally embrace cloud-based alternatives. Those hanging on to on-premise platforms face the unenviable task of constantly upgrading and purchasing new technology to meet changing needs within the business and amongst their customers. This requires a huge amount of expense tied to the regular upheaval and upgrading of legacy systems. Instead, cloud technologies provide a scalable, cost-effective solution, ensuring businesses have access to the latest technologies without the need for addressing legacy issues.

Automate to Innovate

Next, PE firms must drive efficiency by automating processes within the business. Automating simple tasks can save valuable employee time so they can spend it on higher value tasks, and help to mitigate costly errors.

Pre-empt customer churn

Finally, understanding the rate of customer churn is an essential metric during uncertain market conditions. Implementing solutions which provide insights by identifying and tracking customer churn probabilities based on metrics like ageing, open balances and product usage can help businesses preempt when and who may lose interest and stop using your service, and target them to drive engagement.

Businesses are potentially facing a hard short to medium term future as the economy begins a long and gruelling recession . While PE firms may instinctively want to make cut backs to their portfolio clients in the face of these threats, now is not the time to be rash, but to be smart. Incremental investment into solutions such as cloud-based platforms, automation and customer churn analysis tools will help them ride the upcoming storm, ensuring they can be more efficient and cost-effective while still providing the services their customers expect.

Nathan Shinn, Founder and Chief Strategy Officer, BillingPlatform

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