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Informing Value Creation
“12 is the new 5.” The bar for PE value creation has never been higher. Tech DD is how the best firms clear it.
This is the third and final blog post in Noremo’s Tech Due Diligence series. Having examined how Tech DD can protect value at Exit and what Buy-Side investors must look for before they sign, we now turn to Tech DD’s most powerful application: informing Value Creation.
The New Deal Maths: “12 Is the New 5”
Bain & Company’s Global Private Equity Report 2026¹ opens with a striking observation. During PE’s golden decade in the 2010s, a typical buyout required just 5% annual EBITDA growth to deliver a target 2.5x return over five years. Today, with borrowing costs at 8–9%, lower leverage ratios and purchase multiples at record levels, Bain calculates that the same 2.5x return now requires 10–12% annual EBITDA growth. Hence the title of their report: “12 is the new 5.”
The implications are profound. This is not an incremental shift in the difficulty of generating returns — it is a structural one. GPs cannot rely on financial engineering and multiple expansion to do the heavy lifting any more. The only route to the returns that LPs demand is genuine, sustained operational improvement. Value Creation is not a plan B. It is the only game to play.
Rebecca Burack, head of Bain’s global Private Equity practice, put it plainly: “Generating attractive returns now requires significantly more operational improvement and revenue growth.”¹
And yet — in an era when virtually every business depends on technology to operate, compete and grow — too many Value Creation plans are still written without a serious technology foundation. Tech DD changes that.
What Tech DD Actually Tells You About Your Value Creation Plan
When buying an entire company, the primary objective of Tech DD is risk identification. Those risks can be used to inform price negotiations, and significant issues can be listed as Warranties in the Share Purchase Agreement requiring the seller to remediate them post-close. But in the PE world, Tech DD’s most compelling justification is what it does for the buyer’s Value Creation plan.
Pretty much every investment thesis in 2026 is predicated on the target company achieving substantial revenue growth and/or operational efficiencies during the ownership period. Whether it’s geographic expansion, a Buy & Build M&A programme, launching new product lines or adding subscription services — all of those ambitions depend on the underlying technology estate being capable of supporting entirely new or fundamentally reworked business processes.
Tech DD answers the questions that financial modellers cannot. Are the target company’s commerce and CRM systems capable of handling multiple countries, currencies and languages — and complying with local taxation and data protection regimes? Will its Product Information systems support the EU’s Digital Product Passport requirements under the ESPR sustainability regulations coming into force in 2026/27? Is the ERP system current and standard enough to integrate supplier data from planned acquisitions in the next 12 months? These are not marginal questions. They are questions whose answers will determine whether your investment thesis is achievable — or whether it will collide with an eighteen-month system rebuild that nobody budgeted for.
Uncovering the Rats’ Nest
Tech DD’s primary role remains risk identification, and the range of risks it uncovers is wide. At best, a finding might simply extend the timeline on a planned initiative — a new data platform takes twelve months longer than projected. At worst, it could cause a business to implode within months of signing — a critical cyber attack, a catastrophic system migration, an out-of-support codebase that nobody in the current team understands because the people who wrote it left three years ago.
These risks compound as business debt. Duplicate processes proliferate. Manual interventions become the norm. Customer service teams are perpetually overworked because the systems that should automate routine tasks are too old or too fragile to be trusted. Error rates are high. Lead times are long. Customer satisfaction drifts. The inevitable outcome is that operating costs are materially higher than they should be — and the timeframe to build or integrate new platforms is far longer than the investment thesis assumed.
The Walmart story is instructive here from the opposite direction. From the 1980s onwards, Walmart made technology and supply chain data infrastructure a strategic priority that competitors treated as a back-office afterthought. Their Retail Link system — giving suppliers real-time visibility of sales data and inventory levels — became a competitive weapon that widened their cost and efficiency advantage over decades.
² They did not stumble across this advantage. They invested in it deliberately, early and consistently. A PE acquirer doing Tech DD on a business with that kind of embedded data infrastructure would be looking at a genuinely valuable hidden asset. A PE acquirer doing Tech DD on a business that has allowed its data estate to decay would be looking at years of remediation work before that kind of ambition was even possible.
Finding the Hidden Gems
Every now and then, Tech DD has the opportunity to do something more valuable still: uncover innovations that the current management team has failed to recognise, commercialise or prioritise. The reasons are varied. A clash of personalities between a skunkworks team and its leadership. A middle manager who buried a prototype because it threatened their own position. A genuinely transformative idea that was simply too far ahead of the business’s ability to execute on it at the time.
It is worth remembering that some of the world’s most consequential technology companies have had improbable and overlooked origins. Monzo — now Britain’s largest digital bank with over 12.5 million customers and a profitable business model³ — was founded in East London in 2015 by a small team who believed that an entire industry’s technology stack was broken and could be rebuilt from scratch on a smartphone. The established banks had the data, the customers and the capital. They lacked the institutional willingness to cannibalise their own model. GitLab — now a publicly listed DevOps platform used by IBM, NASA and Goldman Sachs⁴ — was started in 2011 by Dmitriy Zaporozhets, a web developer working out of Kharkiv, Ukraine, as a side project because the available collaboration tools were too expensive for his team. The problem was real. The solution was elegant. The market turned out to be enormous.
Neither of these companies would have appeared transformative to a sceptical observer at the moment of their founding. That is precisely the point. A fresh set of eyes — unburdened by proximity, politics or prejudice — is often what it takes to recognise the potential in what already exists.
In a PE portfolio company context, it is often not a single dramatic innovation that matters most, but the cumulative effect of many smaller ones. A structured culture of experimentation — where teams are encouraged to test ideas within clear parameters, measure outcomes honestly and share what they learn — will, over a 3–5 year ownership period, generate far more value than waiting for a single transformative moment that may never come.
Tech Strategy in the First 100 Days
In the weeks immediately before and after deal completion, the most capable PE teams will already have a first-cut Value Creation plan and will be working with the new portfolio company’s senior leadership to revise and improve it. This is also the moment when management teams have the least capacity to absorb additional demand. They are navigating the uncertainty of a change of ownership, managing the questions and anxieties of their own teams, and dealing with business as usual — all simultaneously.
This is when third-party Tech Strategy guidance delivers its most concentrated value. Not to replace management’s judgment, but to give it technical grounding. To translate the investment thesis into a concrete Tech Roadmap. To prioritise initiatives by impact and feasibility, so that limited time and capital are deployed where they will move the needle fastest. To generate cost estimations that inform the Tech budget request with credible numbers rather than best guesses. To kick-start key programmes, run RFP processes with preferred suppliers, and ensure that the first 100 days build momentum rather than consuming it.
The best way to overcome fear, uncertainty and doubt in an organisation is to give people a clear view of the strategic objective — and to keep them busy.
If you arrive as the new owner with a clear plan, and a leadership team capable of communicating it effectively, business transformation can happen far faster than anyone expects. Change, once started, tends to build its own momentum. And if transformation begins earlier than anticipated, the exit window begins to move left on the timeline — and the return potential moves with it.
That is the ultimate promise of Tech DD done well. Not just risk mitigation. Not just a more credible warranty schedule. But a faster, better-informed path to the kind of EBITDA growth that PE’s new era demands — and a superior return for everyone who believed in the thesis.
In other articles in this series we cover:
References
¹ Bain & Company. Global Private Equity Report 2026: Powering Forward in a New Era. February 2026
Bain’s “12 is the new 5” framework: typical buyouts in 2025 required 10–12% annual EBITDA growth to generate a 2.5x MOIC over 5 years, vs. 5% in the 2010s. Borrowing costs 8–9% vs. 6–7%; leverage ratios 30–40% vs. 50%; exit multiples ~15x vs. ~12.5x EBITDA.
² Amplio. “Walmart’s Supply Chain: A Case Study in Innovation.” amplio.com
Walmart’s Retail Link system, developed from the 1980s onwards, gave suppliers real-time access to sales and inventory data, creating a structural competitive advantage over rivals who treated supply chain technology as a cost centre rather than a strategic asset.
³ Wikipedia / Monzo Bank. Monzo Bank — founded London, 2015. As of August 2025: 12.5 million customers, annual profit £94.5 million
⁴ Kyiv Post. “Founder of ‘Ukrainian Unicorn’ GitLab Happy with Life in Kharkiv.” Kyiv Post, October 2018
GitLab was created in 2011 by Dmitriy Zaporozhets, a web developer based in Kharkiv, Ukraine.
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