The evolution of Private Equity operators in the next digital evolution

Over the last few years, a period in which private equity operators have established in Italy, there has been an evident and substantial change with respect to both the methods of intervention and the investment industries. 

In the past, corporate finance gurus supported the need to allocate capital towards so-called tangible assets, i.e. capable of providing a real guarantee for business risk, producing extra performance compared to the market average and, above all, capable of generating huge cash flows.  

PE funds, therefore, were searching for companies operating in traditional industries, capable of producing large cash flows without excessive efforts to defend their competitive positioning.

Today, also based on the results of previous research, the aforementioned paradigms seem to have radically changed.

From tangible to intangible; Is it true that PE operators no longer look at short-term cash flow but at other elements, even intangible ones? 

If ten years ago someone had told me that during my professional career, I would have dealt with a Private Equity operator interested in investing in companies with negative operating margins, whose structures are made up of very few people, whose business model is based on totally digital infrastructures, I would never have believed it. However, this is exactly what is happening today; even the more traditional operators are looking forward to investing in technological, innovative industries, which are very often completely dematerialized.

Are we reviving what happened in 2000, then giving rise to the so-called “dot-com bubble”?

Absolutely not, when I talk about technology, digital, dematerialized industries, I am not referring to the generic concept of "online", software or apps. I am referring to old and new industries, whose structure has changed profoundly, or is destined to change profoundly, thanks to the use of technology.  

Where technology can reinvent the rules of the game, financial operators from all over the world see an interesting opportunity for creating value.

Can you make a concrete example? 

Think about the medical sector: once, we were used to physically going to our doctors, for example the psychologist, for a consultation. Now, it is possible to do this not only in a totally virtual way, but also by benefitting from a series of previously unthinkable possibilities:

• choose the psychologist you prefer (through prior viewing of the CV, video presentation and, above all, independent references);
• rely on very powerful tools based on artificial intelligence, capable of carrying out more accurate and predictive diagnoses;
• put together a vast portfolio of psychologists and overcome geographical barriers;
• connect an excellent training system, including university ones, to these platforms, to guarantee the quality of the service offered.

Each of the above points is an advantage for the user, for the supplier, and for the investor

In conclusion? 

First of all, I could mention the above example just because PE funds made it possible. This new sector, in fact, was born thanks to Private Equity.  But the thing that strikes me most is that previously a Private Equity operator would never have thought of being able to invest in a psychologist's office. Today, it is one of the many asset classes that have top priority for financial operators around the world.  

Previously, we were used to having hundreds of thousands of small independent professionals spread across the country, while today we have national-level organizations that group these professionals in an organized and structured way, guaranteeing them training, visibility and operational stability. 

And tomorrow? These organizations will probably become international networks and maybe they will be even listed on the stock exchange.