Why Digital Strategy Is the New Value Creation Lever in Private Equity

Date: April 2025

Executive Summary

Private equity (PE) is at a pivotal inflection point. As traditional value creation levers such as financial restructuring, multiple arbitrage, and operational optimization mature, new sources of alpha are required to meet the expectations of increasingly sophisticated limited partners. One lever that has risen in prominence over the past decade is digital strategy. Far from being a supplementary tactic, digital strategy has become a core pillar of value creation across all stages of the investment lifecycle.

This white paper explores why digital strategy is no longer optional for PE firms and how a well-executed digital roadmap can drive faster growth, higher EBITDA margins, and accelerated, more profitable exits. It includes empirical data, real-world case studies, frameworks for execution, and metrics that PE professionals can use to evaluate, implement, and scale digital initiatives within portfolio companies.

The Decline of Traditional Levers and the Rise of Digital

Saturation of Conventional Value Levers

For years, PE value creation centered around three core activities:

  1. Financial engineering (e.g., leverage, dividend recaps)

  2. Operational efficiency (e.g., SG&A cuts, procurement consolidation)

  3. Buy-and-build strategies (e.g., roll-ups, platform expansion)

While these tactics still matter, their efficacy is decreasing:

  • Financial engineering faces regulatory scrutiny and rising interest rates.

  • Operational improvements offer diminishing returns, especially in lean sectors.

  • Buy-and-build is increasingly competitive, with inflated multiples and integration risk.

Digital as a Differentiator

McKinsey & Company reports that companies which prioritize digital levers during ownership cycles achieve 31% higher EBITDA growth than peers who do not. Digitally mature firms are more adaptive, resilient, and able to capture shifting customer expectations and operational advantages in real-time.

What Is Digital Value Creation in PE?

Digital value creation refers to the use of technology, data, automation, and analytics to drive business performance and shareholder value. This includes, but is not limited to:

  • Digital marketing & customer acquisition

  • Data analytics & business intelligence

  • E-commerce & DTC enablement

  • CRM & customer lifecycle management

  • Process automation (e.g., RPA, AI)

  • Martech and sales enablement tools

  • Cloud infrastructure and system modernization

In short, digital strategy is not a singular initiative. It is a transformation framework that spans marketing, operations, finance, and product.

Impact Metrics: What the Data Shows

Revenue & Profitability

According to a 2022 PwC report, portfolio companies that embraced digital transformation initiatives saw:

  • 22% year-over-year revenue growth, versus 10% for laggards

  • 15-25% EBITDA improvement from better pricing, reduced churn, and channel efficiency

Exit Velocity

A Bain & Company survey found that digital leaders were 1.4x more likely to achieve early exits than digitally immature counterparts. Additionally, those same companies achieved a 12-18% valuation premium at exit.

Valuation Premiums

Increased digital maturity directly correlates with higher multiples:

  • Companies with strong digital KPIs (e.g., CAC:LTV, churn rate, ROAS) are easier to underwrite

  • Digitally enabled customer models (e.g., e-commerce, subscription) increase predictability and cash flow quality

Case Studies: Digital as a Value Creation Engine

Case Study 1: Industrial Services Firm

A lower-middle-market PE fund acquired a family-run industrial services company with no digital presence. Within 18 months:

  • Launched paid search and CTV campaigns

  • Introduced HubSpot CRM and automated lead follow-up

  • Deployed a quoting tool for faster turnaround

Results:

  • 38% increase in lead conversion rate

  • 26% YoY revenue growth

  • 3.1x exit multiple (vs. target of 2.3x)

Case Study 2: Healthcare Roll-Up

A growth fund pursuing a multi-clinic consolidation strategy embedded a shared digital stack across 11 acquisitions:

  • Consolidated all digital marketing

  • Built a centralized patient portal

  • Rolled out a KPI dashboard for CAC, NPS, and scheduling velocity

Results:

  • 43% improvement in CAC efficiency

  • 19% increase in patient retention

  • Exit within 3.5 years at 15.6x EBITDA

The PE Digital Playbook: A Phased Approach

Phase 1: Digital Due Diligence

  • Assess digital footprint, tech stack, website, SEO, media spend

  • Evaluate analytics capabilities and data maturity

  • Scorecard digital talent and culture

Phase 2: 100-Day Plan

  • Identify 3-5 high-impact, low-lift initiatives

  • Prioritize lead-gen, CRM, analytics, and martech upgrades

  • Create KPI baseline for revenue, CAC, LTV, and digital spend

Phase 3: Value Build-Out

  • Introduce marketing automation, CRO, advanced attribution

  • Test paid media scaling strategies (e.g., YouTube, CTV, LinkedIn)

  • Leverage AI tools for sales forecasting, churn reduction, and personalization

Phase 4: Exit Optimization

  • Benchmark digital maturity vs. comps

  • Package digital KPIs and case studies in CIMs

  • Highlight digital channels and automation as margin boosters

Organizational Enablers: Building Digital Capability

Talent

Hiring or embedding digital leaders into portfolio companies is essential. PE firms often second experienced operators or bring in fractional CMOs, CTOs, or CROs.

Tools & Infrastructure

Build a shared service model for digital support:

  • Marketing automation templates

  • Reporting and BI dashboards

  • Media buying playbooks

  • Centralized agency/vendor relationships

Governance

  • Monthly digital KPI reviews

  • Quarterly value creation committee reporting

  • Incentivize management on digital milestones

Risks & How to Mitigate Them

  • Overengineering: Avoid building overly complex solutions in low-margin businesses.

  • Cultural Resistance: Invest in training and change management.

  • Integration Failure: Ensure clean data infrastructure and cross-functional buy-in.

The Road Ahead: Why It Matters Now

  • Generative AI & Automation: GPT, Claude, and other tools have democratized access to advanced analytics and customer engagement capabilities.

  • Changing Consumer Behavior: Post-COVID digital adoption is permanent. Customers expect omnichannel interactions and real-time service.

  • Valuation Compression: Digital maturity is a hedge against declining market multiples, creating defensible moats and resilient business models.

Conclusion

Private equity firms that embed digital strategy into their value creation playbook are better positioned to drive outsized returns. As competition intensifies and operational alpha becomes harder to find, digital becomes not just a lever—but thelever.

Firms that adopt a systematic, data-backed, and scalable approach to digital transformation will:

  • Capture outsized revenue and margin gains

  • Execute faster, more profitable exits

  • Differentiate themselves in a crowded fundraising environment

Digital is no longer a support function. In private equity, it is a strategic imperative.

Sources

  • Harvard Business School, "Private Equity and Digital Transformation"

  • McKinsey & Co., "How Private Equity Can Create Alpha Through Digital"

  • PwC, "Private Equity Value Creation Through Digital"

  • Bain & Company, "Winning with Digital in PE"

  • EY, "Three Tech Pillars Driving Value Creation for PE Portfolio Companies"