ERP Technology Transformation: Modernizing for Scalability & Exit Readiness
Despite concerns around the cost required of significant ERP investments, over the past two years, private equity firms have had more time to focus on portfolio company operations. Investors and operators have recognized the difficulty of integrating multiple add-ons in disparate systems.
This realization, coupled with issues around cost and revenue—like cost accounting and margin visibility—has prompted technology transformation efforts in ERP systems, corporate planning management and customer relationship management. We explore the current state of these transformation efforts and the ways a successful investment can enhance value creation.
ERP Systems
SITUATION
Many portfolio companies still leverage legacy systems like QuickBooks or near end-of-life ERP versions of Oracle, Info or SAP. Legacy systems often have trouble integrating new acquisitions, managing production and operations or maintaining product and service cost and margin visibility across multiple locations. In many recent private equity exit processes, these issues have caused potential buyers to lower their valuation of a portfolio company with legacy systems, given the difficulties of executing high-priority merger and acquisition integrations and margin improvement initiatives.
IMPACT
For portfolio companies early or near the middle of their holding period (1-3 years), a modernized ERP backbone like NetSuite allows organizations to quickly integrate existing operations to manage them more smoothly. The result: they realize synergies faster and see more rapid margin improvement efforts. For portfolio companies near exit, a modern ERP platform reduces potential IPO risks from improved controls or creates a stronger backbone for other buyers to build upon.
Corporate Planning Management
SITUATION
Many portfolio companies adopt a new ERP to improve scalability. But some that are later in their hold period are resistant to making this change due to strong private equity pushback for the level of investment required. However, many portfolio companies still experience poor reporting issues or have trouble consolidating financial processes across their acquisitions due to disparate, legacy systems. This creates pressure to adopt a corporate planning management tool like OneStream or Anaplan to rapidly resolve these issues.
IMPACT
With increased reporting demands and a desire to acquire more companies ahead of 2025 exits, CPM has become increasingly popular for portfolio companies seeking to defer a large ERP project while rapidly integrating add-ons. For potential buyers of these portfolio companies, the use of a CPM tool can give their value creation plans a boost.
Customer Relationship Management
SITUATION
Many portfolio companies lack customer relationship management systems. Instead, they use business intelligence dashboards or Excel-based reporting to track their sales and customer relationships. As portfolio companies grow through mergers and acquisitions, ineffective sales reporting—particularly by product and channel—can lead to a poorly designed go-to-market strategy that limits revenue growth.
IMPACT
As private equity firms and their portfolio companies look for ways to increase revenue growth, using CRM technologies can improve existing sales, marketing spend and financial reporting when properly integrated into their ERP systems.
MorganFranklin Consulting 2025 Expectation
Given the potential exit valuation and margin impact, private equity firms, especially those with many portfolio companies in the middle of their hold period or nearing exits, will increase ERP and CRM implementation as one of their key exit value creation levers. The adoption of these capabilities will also lead to more finance automation and sales/GTM improvement opportunities.
