Capital Markets Insights

Lift-Outs: A Guide to Private Equity Software & Technology Acquisition

Staying ahead in private equity requires strategic innovation. One such transformative strategy gaining traction is the concept of "lift-outs." In this piece, we delve into the nuances of lift-outs and their inherent benefits and provide a hypothetical scenario to illustrate how this strategic maneuver can reshape the operational landscape of private equity firms.

Understanding the Essence of Lift-Outs:

A lift-out in private equity is a targeted acquisition strategy wherein a fund administrator acquires specific teams or individuals from another firm, often possessing specialized skills or private equity software. Unlike traditional acquisitions encompassing entire companies, lift-outs provide a nuanced and efficient way for private equity firms to enhance their operational capabilities precisely where needed. This approach aligns seamlessly with the industry's ethos of adaptability and responsiveness to dynamic market changes.


Screen showing coding to illustrate Private Equity Software

The Strategic Advantages of Lift-Outs:

Talent Acquisition:

Lift-outs enable private equity firms to acquire talent strategically in a targeted manner. Rather than a broad acquisition that might include redundant functions, a lift-out allows for the precise acquisition of teams with specialized skills and expertise relevant to the firm's strategic goals.

Private Equity Software and Operational Streamlining:

By honing in on specific operational areas, lift-outs enable private equity firms to streamline their operations effectively. This focused approach ensures that the acquired talent and technology is seamlessly integrated into the existing framework, minimizing disruptions and maximizing efficiency gains.

Cost-Efficiency and Adaptability:

Lift-outs provide a cost-efficient solution for private equity firms looking to adapt to changing market dynamics. Rather than investing in developing in-house capabilities, a lift-out allows firms to leverage the expertise of acquired teams or private equity software, adapting quickly to new technologies and market trends.

Employee Motivation and Career Progression:

For the lifted-out teams, a lift-out offers not just a change in employer but a potential enhancement in career progression. Team members find motivation as they immerse themselves in an environment that values their expertise, offering professional growth and advancement opportunities.

A Hypothetical Scenario: How a Lift-Out Works for Private Equity Software

Consider a mid-sized private equity firm aiming to bolster its technology and data analytics capabilities to stay competitive in a rapidly evolving market. Instead of investing extensive resources in hiring and training a new team, the firm explores the option of a lift-out to acquire private equity software.

Identification and Negotiation:

The firm identifies a smaller boutique asset manager known for its prowess in technology, software and data analytics. After negotiations, both parties agree on a lift-out arrangement where a selected group of experts, including data scientists and technology specialists, will join the acquiring firm.

Strategic Integration Planning:

With the lift-out agreed upon, the private equity firm meticulously plans the integration process. This includes a detailed strategy for merging the lifted-out team's operations with existing systems and software, aligning technology infrastructure, and ensuring a smooth transition for clients and staff.

Operational Synergy:

The lifted-out team seamlessly integrates into the acquiring firm, immediately contributing their expertise to ongoing projects. The targeted nature of the lift-out ensures that the firm enhances its technology capabilities precisely where needed, maximizing the impact on operational efficiency.

Employee Transition Support:

The acquiring firm understands the importance of supporting the lifted-out team during the transition. Establishing initiatives such as onboarding programs, career development opportunities, and clear communication channels fosters a positive environment for the newly acquired talent.

Adaptation and Growth:

The lift-out proves instrumental in the private equity firm's journey toward becoming a technology-driven leader. The acquired team brings their technical expertise, private equity software and a fresh perspective, contributing to the firm's ability to adapt to emerging technologies and stay ahead of market trends.

Elevating Success through Lift-Outs

In conclusion, the strategic maneuver of lift-outs is a powerful tool for private equity firms seeking targeted enhancements to their operational capabilities. By acquiring specific teams or individuals with specialized skills, firms can streamline operations, adapt to market changes, and foster employee motivation.

The hypothetical scenario presented underscores how a lift-out can be a strategic game-changer, allowing a private equity firm to elevate its technological prowess and rapidly navigate the complexities of a dynamic market. As the industry continues to evolve, lift-outs are a versatile and efficient strategy, providing a pathway for sustained success in an ever-changing landscape.

A recent Preqin report about alternatives in 2024 highlighted the case for lift-outs. It illustrates a trend we have seen - that private equity firms are rapidly looking at technology adoption to differentiate themselves.

While many firms will look at lift-outs to acquire the necessary technology and software, others will consider solutions such as a Katipult DealFlow to deliver the tools that investors increasingly see as table stakes, starting with investor onboarding through DealFlow Accounts, through to digital workflows provided in DealFlow Core and investment opportunities through DealFlow Marketing.