Private Equity houses need to keep up with digital revolution engulfing Middle East
The Middle East region has embraced the digital revolution and witnessed an increased comfort in ‘going digital’, which comes naturally to the region’s dominant young demographics and good quality infrastructure.
At a consumer level, there is a high level of technology adoption in countries such as Bahrain, Kuwait and the UAE that are considered the most penetrated countries in the world with a mobile subscriber rate of over 90 per cent, according to PwC Middle East. Nevertheless, Middle Eastern companies are still in the process of adoption in comparison to the West when it comes to digitisation.
As the digital landscape evolves, there is a pressing need for private equity (PE) houses in the Middle East to keep up with these rapid changes or risk being left behind. The PE investment horizon means that the digital transformation of a portfolio company is currently being assessed and planned even before PE houses even think about investing in any new company.
PwC Middle East surveyed several leading private equity companies in the region to find out what digitisation means to them and how it’s impacting their investment decisions. The survey, Digitisation: the revolution transforming Private Equity, focuses on the private equity life cycle from investment, holding period right through to exit and highlights the maturity of digital developments facing the region.
“Digitisation is not something that can simply be solely imposed by private-equity investors. Rather, digitally enhancing portfolio companies depends on the actions and attitudes of wider stakeholders including the Board and management, and on how easy it is to change customers’ mind set,” said Erwan Colder, PwC Partner and Middle East Private Equity Leader.
PwC Middle East’s survey shows that PE houses believe that going digital is a necessity, it features heavily in the investment decision process and the value-creation plans. Notably, 80 per cent of PE houses said that digitisation is critical for making their companies ‘future ready’, verses 62 per cent of our European colleagues (from the PwC Private Equity & Digital Transformation survey) stating that digital could deliver ‘sustainable value’ for companies and is considered as the single most important trend influencing investment decisions.
In addition, 75 per cent of PE houses are now focused on the digital maturity of a company at the due diligence stage of their acquisition. That said, PE companies are cautious about their initial investment decisions and they are unlikely to be early adopters of latest technologies. Overall, our survey suggests PE houses recognise they are at cross roads; they must balance the risks of adopting new technologies against the opportunities.
From PwC Middle East’s survey findings, it is also clear that digitisation means different things to different PE houses. Some see it as an enabler to maximise revenues within a fairly short time frame, others see it as a way to improve management reporting, with better quality data feeding better informed decision making. Around 70 per cent of the respondents say that digital can reduce operating expenses.
The fact of the matter is, there is no single right way to embrace digital or to adopt new technologies: the extent of digitising portfolios must be based on the current needs of the company and on global industry standards. While some PE houses seem cautious, digital transformation is front of mind for Governments across the region, with many national programmes launched to improve and develop countries’ digital infrastructure and economy.
The digital revolution is changing the way products and services are consumed. As the market continues to adapt to consumer demand, private equity firms and portfolio companies must remain relevant by mirroring consumer behaviour.
“Having a digital strategy is essential for ‘future proofing’ a company that wants to retain market share and stay ahead of the competition. Those who are nimble will reap the benefits of the value to be created through digitisation,” Colder concluded.