Interview for MENA: 'Too many Private Equity companies waste money on wrong technology choices'

Jan 31, 2024

Interview for MENA: 'Too many Private Equity companies waste money on wrong technology choices'

Written By

Jons Janssens

Private Equity

This is an interview with Jons Janssens for MENA, the Dutch Mergers & Acquisitions professional community. The interview, conducted by Charles Sanders, was published on January 11, 2024. You can find the original Dutch version here.

What acquirers should pay attention to when it comes to the strategic use of IT?

The annual M&A Trend Survey shows that software & technology are still underexposed in deals. Conway & Co's experts use their experience as former executives to assist investors in how they can prepare their portfolio companies for digital growth through technology. This is especially crucial in a time when AI development is advancing rapidly.

Conway & Co professional services include Technical Due Diligence ('An independent look under the hood to understand the digital state of the company'). This audit can be used to better understand how your target company can become digitally fit to realize its growth ambitions or save on technology expenses by simplifying the technology stack. They also train many internal teams to improve the digital DNA of the organization.

In autumn 2022 we spoke to co-founder Jons Janssens. Twelve months later he is looking at the market again.

In an interview with M&A a year ago you talked about the flying start of Conway & Co, founded by you and Martin Samsa in 2021. Has that acceleration continued since then?

We have provided strategic technical advice for approximately 50 companies and are experiencing an annual growth rate of about 40%. In these processes, we often serve as an "on-demand CTO" for investors and their management teams. It's remarkable to witness how we deliver strategic value with an independent perspective, as opposed to conventional digital agencies that are primarily focused on operational aspects like websites. Unfortunately, this often results in insufficient attention being given to the entire tech stack.

We are more likely to be involved at the table, either before or just after an acquisition process. This is where our technical leadership experience truly shines. Martin and I started as a team of two, and we are soon going to welcome our fifteenth colleague. It's worth noting that our employees are not limited to our office on Keizersgracht in Amsterdam; we also have team members in Lithuania and Croatia, for example. Our work is not bound by location, allowing us to attract experienced digital talent from around the world, as long as they are in a compatible time zone for now. This arrangement has worked seamlessly for us, as digital commerce professionals enjoy collaborating with us.

Reflecting on our journey from its humble beginnings to where we stand now in terms of "people and digital talent," I couldn't be prouder. We are fortunate to have exceptional individuals seeking opportunities with us, which is an important indicator of our reputation. Our unwavering focus remains on quality, and we continue to attract talented individuals who share our vision.

Our M&A Trend Research this year showed that the IT status of a company to be acquired is still secondary to other aspects of the acquisition. What is your experience?

Ultimately, success hinges on the convergence of the right technology, growth stage, and people in the right location. However, this crucial insight is often overlooked during acquisitions, resulting in significant financial wastage in technology, system selection, implementation, and operation.

Technology provides the foundation to fulfill your growth ambitions, but it requires the right expertise and people. Unfortunately, we often witness investors discovering that critical business processes rely on outdated software only after the company is already acquired. As a result, the management team operates blindly without the necessary information or integration of data, leading to numerous operational challenges.

Decisions are typically made by CEOs, CFOs, or CMOs. However, despite their expertise in finance or marketing, they often lack substantial knowledge in technology. The CFO understands money, the CMO excels at generating traffic, but software remains a necessary evil. In the boardroom, technology and IT are often treated as mere projects or temporary solutions. Yet, they should be viewed as continuous processes that generate value rather than just cost drivers. Unfortunately, there is a glaring shortage of digital executives in modern boardrooms, even in the midst of the digital age. Technology still receives insufficient attention at the strategic table.

You often compare the current state of affairs to Formula 1 and how teams achieve maximum performance.

Formula 1 revolves around the superior car, supported by a strong engineering team and the best technical components. Similarly, in the realm of software, a well-integrated technology stack plays a pivotal role in enhancing the customer journey. These software systems should be wielded by the most skilled digital talent. When these elements align, the result can be as formidable as Red Bull and Max Verstappen's triumphant performance last season.

The lesson here is that while having an exceptional software stack is crucial, it is meaningless without the right "driver" – an astute e-commerce manager. We assist our clients in comprehending the technological landscape and attaining digital proficiency. Just as companies undergo annual financial audits, a tech audit should also be a standard practice. After all, what modern company isn't driven by software these days? It's imperative to give the "race car" a quick inspection and ensure all components are polished or replaced. Without continuous maintenance and further development, there can be no competitive advantage in the online race. By 2024, stagnation and ill-informed technological decisions will no longer be affordable.

What is the role of tech due diligence in a planned acquisition, or what should that role be in Conway's perspective?

When it comes to opening the black box of acquisitions, it is crucial for our team to provide a comprehensive and unbiased assessment of both the associated risks and growth potential. Moreover, we understand the importance of conveying these insights in a language that resonates with business professionals. Technology, in itself, is never the end goal. Rather, it serves as an enabler for businesses to operate efficiently, deliver value to customers, and generate revenue. For this reason, it is imperative that technology aligns seamlessly with the operational model, encompassing processes and people.

Equipped with a deep understanding of both business strategy and technical aspects, our clients are well-equipped to embark on the acquisition process with confidence. In some cases, it becomes necessary to abandon a proposed acquisition deliberately. Our consultancy primarily focuses on software or software-driven deals within the mid-market, such as e-commerce or retail. It is essential that tech due diligence discussions take place at the boardroom level, not tucked away in the basement. When two companies merge, the coordination of software systems becomes paramount to avoid any issues. The digital backbone must be harmonized. We provide the necessary information within a three to four week timeframe to facilitate informed decision-making regarding potential takeovers.

Do you still mainly assist Private Equity companies?

The percentage even witnessed significant growth last year, soaring from 70 to 80 to an impressive 90%. Private equity funds have a strong appetite for clear insights into the world of software and technology. To achieve digital growth, we conduct thorough audits and develop action plans that outline the path to success. Additionally, we offer assistance in implementing these improvements post-acquisition, both in terms of software systems and the selection and training of personnel. We also visit portfolio companies to assess their current status and provide guidance on the optimal tech stack and team for the upcoming growth phase.

Looking at venture capital, what are the developments there?

There has been a noticeable shift in the VC landscape. In the past, the focus was primarily on growth, often neglecting other important aspects. However, there is now a growing emphasis on "profitable growth" and the pursuit of profitability. This approach resembles the way private equity firms evaluate companies, which, in my opinion, is a much healthier approach. It combines ambition with a realistic outlook, creating a more balanced and sustainable business model.

When discussing the significance of technology and software, one cannot overlook the rapid advancement of artificial intelligence (AI). Can AI truly disrupt business models?

AI lies at the core of what we, as Conway & Co, strive to achieve - ensuring companies are digitally fit and in prime condition. Gone are the days of operating blindly or relying on rickety software architectures without integrations, as I mentioned earlier. Executives can no longer afford to ignore this reality. AI thrives on data, thus it becomes imperative to have all the necessary components in place. This includes a centralized data warehouse and a digitally savvy individual within your team's boardroom. Failure to establish this foundation will only amplify the challenges many companies are already facing, preventing them from seizing the vast opportunities that AI presents.