Why More PE Firms Are Building Technology Into the Value Creation Plan From Day One
7/30/20264 min read
A structural shift in how mid-market PE firms create value has been building for several years and has become especially visible over the past twelve months: with multiple expansion far less reliable as a source of returns than it was in the last decade, funds are leaning harder on operational value creation within each portfolio company, and technology cost and infrastructure optimization is increasingly named explicitly in the initial value creation plan rather than treated as a background operational detail to address whenever time allows.
The Environment That Made This Shift Necessary
For much of the prior decade, a portfolio company that simply grew revenue and held margin steady could often count on multiple expansion alone to deliver a strong return at exit, driven by generally favorable financing conditions and rising valuations across the market. That environment has become considerably less reliable, and holding periods have lengthened as funds wait for more favorable exit conditions rather than selling into a compressed multiple environment. Both changes push harder on operational value creation as the more dependable, controllable lever, since it doesn't depend on market conditions cooperating at the moment of exit.
Technology cost and infrastructure has emerged as one of the more attractive categories within that operational value creation push, precisely because it tends to hold more unreviewed waste than better-scrutinized categories like headcount or facilities, and because the savings are structural and recurring rather than one-time, compounding in value across a longer hold period in a way that's particularly well suited to funds now planning for extended ownership.
This isn't a case of technology suddenly becoming more important than it used to be. It's a case of funds having exhausted the more obvious, more heavily scrutinized cost categories first, and only now turning their attention systematically to a category that was previously assumed to be already efficient simply because nobody had looked closely enough to find otherwise.
How This Shows Up in Deal Documents Now
Where a value creation plan two or three years ago might have mentioned "IT cost optimization" as a single generic line item, current plans increasingly specify a technology audit as an explicit, scheduled workstream within the first 100 days, with a target EBITDA contribution attached to it, treated with the same specificity as a revenue growth initiative or a pricing strategy workstream. This reflects operating partners having seen the pattern often enough, across enough portfolio companies, to build it into the standard playbook rather than treating each instance as a one-off discovery.
Lenders and co-investors evaluating a deal are increasingly asking about this specifically as well, wanting to understand what operational levers a fund has identified and quantified beyond revenue growth assumptions, which makes a documented technology cost optimization plan a genuinely useful piece of the broader investment thesis presented to financing partners, not just an internal operating exercise.
Why This Trend Is Likely to Continue
None of the underlying conditions driving this shift look temporary. Extended hold periods reward structural, recurring savings over one-time cost cuts. A more competitive fundraising environment rewards funds that can point to a repeatable, quantifiable value creation methodology rather than case-by-case operational improvements. And the accumulated evidence, from funds that have run this playbook across several portfolio companies, increasingly makes an easy internal case that this workstream reliably pays for itself many times over relative to its cost.
What This Means for Funds Still Treating It as an Afterthought
Funds that haven't yet built technology cost and infrastructure optimization explicitly into their value creation plan are increasingly the exception rather than the norm among peers running comparable strategies, and the gap is becoming a genuine competitive disadvantage in two specific ways: slower EBITDA improvement across the portfolio relative to funds that start this work in the first 100 days, and a less compelling operational value creation story to tell LPs and financing partners during the next fundraise. Building this into the standard playbook now is considerably easier than retrofitting it across an already-mature portfolio later, for the same reason that any standardization effort is easier to build early than to backfill.
How Sophisticated Funds Are Structuring This Now
The more advanced version of this trend goes beyond a one-time technology audit written into the initial plan. Funds furthest along are building technology cost and risk review into the standing quarterly operating cadence for every portfolio company, the same way financial performance gets reviewed every quarter regardless of whether anything unusual has happened. This treats technology optimization as a continuous operating discipline rather than a single value creation initiative that gets checked off the list once and never revisited, which matters given how quickly contracts, vendor relationships, and security requirements shift over a multi-year hold period.
The Competitive Angle for Fundraising
LPs evaluating a fund's track record increasingly want to understand not just the returns achieved, but the repeatability of the value creation methodology behind them. A fund that can point to a standardized, quantified technology cost optimization workstream applied consistently across its portfolio, with a track record of results across multiple companies rather than a single anecdote, has a materially more compelling story than a fund whose value creation narrative rests primarily on market timing or a handful of unrelated operational wins. This is becoming a genuine differentiator in a increasingly competitive fundraising environment, not just an internal operating nicety.
The funds most likely to still be treating this as optional a year from now are, by definition, the ones with the least evidence to show for it, which makes the case for starting now less about following a trend and more about not being the last fund in the peer set still relying on hope rather than a documented process.
Sigma Technology Consulting, Inc.
25 Years of Experience, Vetting & Procuring Technology Vendors
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