Rewriting the Balance Sheet: A New Era for Private Equity Value Creation

Discussion with Milos Prochazka

With a career spanning over 14 years in mergers and acquisitions across Central and Eastern Europe, Milos Prochazka brings a unique blend of legal, economic, and operational expertise to the table. Having studied law in Prague and economics in Tokyo, Prochazka started his own M&A firm before becoming Chairman of Supervisory Board at ABRA Software, a Czech ERP leader acquired by German private equity firm Elvaston. In this conversation, he sheds light on how private equity firms can navigate the complexities of technology integration, AI-driven due diligence, and ESG expectations to unlock value in software and legacy industrial businesses alike.

The Tech Integration Gap: Why PE Needs Operational Insiders

For many private equity firms, the path to digital value creation is hindered by a core disconnect: a lack of technical expertise within the investment team. "Financial companies don’t truly understand the operational side", said Prochazka. "They’re often focused on reports and numbers, but to really grasp a company’s potential, you need to be on the floor—talking to CTOs, R&D teams, and experiencing the operations firsthand".

This gap often forces PE firms to rely heavily on outsourced technical due diligence. However, without the internal capacity to interpret those evaluations, decision-makers may end up investing blindly. "The best scenario", he adds, "is when you can bring in someone from your own portfolio company—like a technical director or R&D lead—to assess whether an acquisition is truly a strategic fit".

Prochazka argues that operating partners are no longer enough if they lack technical depth. The future of successful dealmaking, especially in software, lies in embedding domain-specific operational expertise within the PE structure. This allows firms not just to assess risks more accurately, but also to uncover synergies and scale opportunities others might miss.

AI-Powered Due Diligence: The 80/20 Automation Rule

As artificial intelligence evolves, the traditional due diligence process—long considered a bottleneck in dealmaking—is being radically reimagined. Prochazka forecasts, "I expect that within the next year or two, software will be able to handle 80% of standard due diligence tasks—accounting, tax, and even parts of legal".

Modern AI platforms are increasingly capable of parsing large volumes of complex documentation—frame contracts, employment agreements, and insurance policies—and extracting key risks and opportunities. This not only accelerates the due diligence timeline but also reduces the margin for human oversight in data-heavy reviews.

But automation doesn’t replace expertise. As Prochazka notes, "There still needs to be strategic judgment at the top. Even if AI gives you all the facts, it takes experience to interpret what they mean in the broader context of your investment thesis". That context includes commercial viability, cultural alignment, and post-merger integration feasibility—elements AI alone cannot fully evaluate.

Ultimately, successful firms will be those that use AI to enhance—not replace—their strategic judgment. The goal isn't to eliminate human analysis, but to augment it with data-driven insights that sharpen decision-making.

‍

Digital Transformation as a Value-Boosting Strategy

Digital transformation has become a differentiator between businesses that merely survive and those that scale. Prochazka underscores this point by noting, "At least 80% of Czech production companies are still behind in digital adoption. That’s a massive opportunity".

These under-digitized firms often trade at significant discounts due to perceived technological lag, but that discount masks latent potential. Many such companies possess longstanding customer relationships and deep industry expertise—strengths that, when paired with modernization, become formidable assets. "The value lies in their relationships", Prochazka emphasizes. "If you can modernize operations—through manufacturing execution systems or warehouse automation—you make these companies competitive again".

PE firms that recognize the transformation journey as part of the value creation plan—not a post-acquisition afterthought—stand to realize significant returns. "Buy for 100%, but set aside 20% for transformation", Prochazka advises. "If you innovate successfully, a company bought at a 3x multiple could exit at 7x or 8x". Strategic reinvention turns ‘cash cows’ into high-growth platforms.

Compliance Complexity: GDPR, ESG, and the Price of Entry

In an increasingly global investment environment, compliance is no longer a back-office concern—it’s a strategic prerequisite. "For funds outside Europe, understanding GDPR is crucial", Prochazka warns. "Even if the portfolio company has licenses in place, knowing how employee data is stored and used is essential".

Beyond data protection, ESG considerations are reshaping M&A. While smaller deals may still close without rigorous compliance, institutional buyers and global corporates are introducing new ESG gatekeeping standards. “We’re seeing deals where the acquirer cares more about ESG questionnaires than the financials”, says Prochazka. These include gender representation in leadership, whistleblower protocols, and carbon footprint disclosures.

This isn’t just corporate box-ticking—it's risk mitigation and brand protection. ESG compliance can directly impact access to capital, valuation, and post-acquisition integration. Firms targeting strategic buyers or aiming for IPOs must now treat ESG readiness as a core part of the investment story.

Cybersecurity: From Due Diligence to Legal Safeguards

Cybersecurity has evolved from an IT issue to a boardroom priority—and a potential deal killer. Prochazka’s approach reflects this shift: his team incorporates cybersecurity reviews as a standard element of technical due diligence. "If vulnerabilities are found, we reflect that in the reps and warranties of the purchase agreement. The seller is then liable if the issue escalates post-acquisition".

This proactive framework does more than surface risks—it creates accountability. “In many cases, we give them a six-month window to eliminate known risks. If they don’t, there are financial consequences”. Embedding cybersecurity obligations into legal terms protects buyers from post-deal liabilities.

Given the escalating threat landscape—from ransomware to data breaches—Prochazka recommends institutionalizing cybersecurity diligence in all tech M&A. "It’s about protecting the upside of your deal", he concludes. Without it, firms may inherit far more than they bargained for.

‍

Key Takeaways for the Executive Community

1. Build internal technical capabilities—not just financial acumen: The evolving nature of technology-driven acquisitions demands that PE firms go beyond spreadsheets. Embedding technical expertise within the investment team—be it through CTO-level advisors or strategic partnerships—enables more accurate valuations, smoother integrations, and better decision-making.
2. Treat digital transformation as a long-term investment multiplier: Rather than viewing transformation initiatives as operational overhead, forward-looking firms recognize them as accelerators of enterprise value. With the right technological upgrades, legacy businesses can be repositioned as high-growth assets. The ROI lies not just in cost savings but in unlocking new market potential.
3. Compliance, ESG, and cybersecurity are no longer optional—they’re foundational: Regulations like GDPR and ESG frameworks are shaping who gets funded and who doesn’t. Likewise, overlooking cybersecurity during due diligence can introduce hidden liabilities. Smart investors now treat these as core elements of risk management and value preservation, addressing them proactively from day one.

‍