The Context
Software Costs as a Value Creation Lever — and Why PE Firms Are Finally Taking It Seriously
Private equity has long optimised real estate, headcount, procurement, and supply chains. Software contracts have historically been left largely untouched — partly because the expertise required to challenge Oracle's EA structure or SAP's FUE model simply didn't exist in most PE ops teams, and partly because the perceived risk of disrupting operational systems outweighed the perceived savings opportunity.
That calculus has shifted. As enterprise software costs have grown 15-25% annually at many portfolio companies — driven by vendor pricing escalations, acquisition-related contract gaps, and unchallenged auto-renewals — software now represents 12-18% of total operating expenditure at most mid-market companies. It's no longer background noise. It's a material EBITDA lever.
The PE firm that engaged us had a $2.4B fund with 11 portfolio companies. After an internal spend analysis, their operating partners identified that software contracts across 7 of those companies were at or approaching renewal in the next 4 months — and that aggregate software spend across those 7 companies was $31M annually. Initial benchmarks suggested significant overpayment, but the ops team lacked the vendor-specific expertise to execute renegotiations without external support.
The gainshare model was the decisive factor in their decision to proceed. Zero upfront cost to the fund meant no capital deployed until savings were verified and contractually locked. At 25% gainshare, the ROI calculation was immediate and unambiguous.