How can Private Equity Firms use Automation? 

A private equity firm, by definition, is an investment management company that provides financial backing and/or makes investments in companies through a variety of strategies including mergers, acquisitions, leveraged buyouts, venture and growth capital, and more.

One of the major aspects of a private equity firm’s daily operations involves making many complex and important financial calculations. These calculations include determining and/or adjusting compensation for employees, outlining ownership allocations related to the acquisition or merging of companies, and more. To make these calculations, many private equity firms use spreadsheets and manual processes that are time-consuming and prone to errors.

The Wall Street Journal predicted that private equity firms will be inundated with investment deals in 2021 after the pandemic slowdown. The increased volume of deals will require a more efficient and productive way of processing calculations.

Luckily, technology is here to help! Intelligent automation, commonly referred to as IA, integrates software robots into business processes to automate and improve business operations. Plus, it also learns and continues to improve the automation(s) over time.

Here’s an overview of three ways private equity firms can use IA to optimize crucial processes:

Three Private Equity Automation Use Cases

Compensation

Compensation is a challenge on the accounting side of private equity. Internal accounting systems require many manual processes, like entering information into spreadsheets and performing complex calculations. These accounting systems then need to adjust for different employee bonus structures, insurance coverage, and benefits. Now imagine doing this at scale, for thousands of new employees at once. Private equity firms must also adapt their accounting processes to accommodate the compensation policies of the companies they acquire.

As a form of IA, robotic process automation (RPA) can quickly and accurately reconcile various compensation structures for employees and businesses by leveraging technology to process simple and complex business calculations. When company policies change or are updated, the RPA software, also known as a digital workforce, is smart enough to make the necessary adjustments through artificial intelligence (AI) and machine learning.

Compensation packages for private equity deals are also difficult to put together because they’re allocated differently depending on the employee’s tier. With IA, compensation is calculated quickly and accurately and paid out immediately as the technology can automatically scan and adjust individual compensations according to employee tiers. Separate compensation calculations can also be made for the private equity firm itself and its associated acquisitions.

While the use of automation streamlines repetitive data extrapolation and compensation calculations, the true return on investment (ROI) in the digital workforce is taking these redundant tasks off the hands of human staff so they can focus on higher-priority and higher-valued initiatives. Additionally, the amount of manual intervention, errors, and rework will be drastically cut down, further protecting the firm and its assets.

Employee Onboarding and Offboarding

As corporate priorities shift and organizations go through turnover, business operations need to find ways to efficiently handle these changes. Following a merger or acquisition, for example, RPA can automatically update employee information and push the data to any relevant upstream or downstream system.

Rules can be established so that onboarding processes conform to compliance regulations and the employee’s role at the company. Using IA, employees can be assigned the right level of access authority for their role based on these rules. IA can also ensure that new employees have access to all the resources they need related to training and supervision, including instructions about how to perform tasks like logging time or submitting expenses.

When employees leave the private equity firm, offboarding them can create risks. These employees have access to information and equipment that belongs to the firm and its clients. During offboarding, IA can be used to simultaneously trigger tasks or checklists in the system to ensure the individual turns in all their assets, including laptops and mobile devices. Digital workers can also change access authority so former employees can no longer see or use company data.

Merger and Acquisitions (M&A) Allocation

The M&A process can become overly expansive and time-consuming, requiring the organizations involved to integrate new systems and processes. This complexity forces staff to learn new operational best practices within a limited time frame. Additionally, companies going through a merger or acquisition are looking for the smoothest way to onboard the new company and its employees to reduce turnover during the process while also minimizing the impact the M&A has on the end customers of the two companies.

RPA can help to ease this process by using AI-enabled digital workers to help with data entry, data mapping, data extraction, and moving data into multiple systems, which is critical for system consolidation after a merger or acquisition. Using digital workers can also help to avoid and reduce human error.

An example of how RPA technology reduces operational costs and promotes a more efficient M&A process is through the automation of allocations. Ownership and compensation allocations are never 1-to-1 after a merger or acquisition. They usually require complex calculations that leverage the legal and compliance, accounting, and operational departments. As a result, having your staff manually calculate these allocation percentages ultimately becomes an inefficient use of resources and is always prone to human error.

Leveraging IA and AI will ultimately allow allocations to be automatically calculated and eventually paid out more accurately. Additionally, when using machine learning technology, the digital workforce is smart enough to account for updates and changes to allocations over time.

Advantages of Private Equity Automation

IA boosts a private equity firm’s bottom line by calculating and processing complex financial transactions more quickly than manual processes and more accurately by eliminating manual data entry risks. The efficiency and accuracy of IA reduce operating costs and enables these firms to focus on growth opportunities.

With IA, outside investors gain more visibility into real-time data as digital workers help with data entry, mapping, and extraction, as well as moving data into multiple systems following a company merger or acquisition. Security is also made easier because IA digital workers have the same access authority as employees who would be performing these tasks.

In addition to automation designed for private equity accounting workflows, a digital workforce can also customize automation to meet a company’s unique workflow needs in other areas of the business.