Why smart investors demand digital reporting in private equity deals
Digitised operations, real-time insights and technology-enabled reporting are emerging as critical differentiators, accelerating transactions, strengthening valuations and determining which deals progress—or collapse.
As such, companies that have invested in digitising operations to make data across the enterprise easily discoverable hold a clear advantage, not only in closing the deal but also getting it across the line quicker.
When target companies have modern digital infrastructures, it means their financial, operational, and customer-related data is more accessible, standardised, and verifiable.
The recent Growing Global report from Forvis Mazars highlights associated benefits, explaining how firms with digitised, audit-ready data rooms and consistent financial and non-financial disclosures typically complete transactions significantly faster than peers reliant on manual reporting.
Transparent, robust and standardised reports boost investor confidence and serve as a deal accelerator by demonstrating if a company is well managed, has a good culture of accountability and has a consistent track record of performance, while also offering financial insight into a company’s future growth prospects.
Faster, smarter due-diligence
Accurate, readily available reports also reduce perceived investment risk, leading to higher portfolio valuations and smoother exits, and enable easier benchmarking and valuations by investors. This accelerates funding decision-making and improves credibility with lenders and credit agencies, as consistent reporting improves corporate credit ratings.
When this digitised business meets digitally-enabled auditors and corporate finance executives with access to solutions like AI, machine learning and data analytics, the enhanced visibility shortens the discovery phase and supports more comprehensive, continuous due diligence.
By automating data extraction and analysis to support human-in-the-loop assessments and due-diligence phases, processes that previously took three weeks to complete now take as little as three days.
Importantly, technology does not sacrifice quality for expedience. Digitally-empowered auditors and corporate-finance executives can more easily and accurately spot anomalies, identify potential fraud, validate compliance with greater precision, and provide a more granular view of a company's financial health and operational resilience.
This deep, fast, and accurate risk assessment builds greater confidence for investors and lenders, smoothing the path for financing and mitigating post-acquisition issues, making exits more attractive and valuation claims more defensible.
The more mature and sophisticated a business is in its digital transformation journey, the more data it has available, and in a format that AI models can consume and analyse.
This readiness helps accelerate the process, expediting the commercial due-diligence phase before shifting to financial due diligence and other important aspects, such as ESG compliance.
The ability to easily uncover these non-financial insights carries immense importance in regions like South Africa, where investors must weigh various governance and sustainability factors, including sourcing, human rights, anti-bribery and corruption laws and equitable supply chains.
Digital deal advantage
Based on this growing reliance on technology and data to assess risks, it is unsurprising that more digitally advanced sectors, like healthcare and financial services, are witnessing the greatest deal flow at the moment, compared to sectors that are laggards in the fourth industrial revolution, such as FMCG, construction, and manufacturing, where many back-office functions remain manual.
Audit firms at the forefront of the digital innovation curve are also investing to develop capabilities in other critical aspects of the due-diligence process, such as tax compliance.
For example, we are already testing tax computations that allow our teams to input trial balances to test assessments.
There are also opportunities for private equity funds to develop tools similar to innovations in the consumer lending sector that leverage structured and unstructured data to analyse risks and assess revenue in real time to identify potential issues.
As such, we are seeing more deals involving private equity firms acquiring stakes in audit firms due to the data-driven insights available, and the opportunity to enhance this data with digital innovation to enhance efficiencies in the companies.
This is impossible with businesses that still run paper-based back-office processes. We are increasingly seeing deals fall through when businesses do not have the visibility that electronic records offer, which is yet one more critical reason for businesses to invest in digital transformation.
