We work often with PE sponsors and their PortCos through digital transformation and strategic initiatives. A friend asked me recently about the most common issue we see with digital transformation projects. The answer surprised him.
It has nothing to do with the implementation itself. It has to do with how they think about that investment, and what happens once the implementation goes live.
The mistake is in treating ERP like a fixed asset. One that you allocate some CapEx to, but treat like a building or piece of equipment once it’s done.
But it’s not a building. It’s not a static thing. It’s a value creation system, one that requires continuous attention to produce returns.
When it gets treated as a one-time investment, more often than not the EBITDA expansion that justified the project never materializes.
Worse, the system slowly drifts out of alignment with the business. People stop fully using it. Reporting still happens in spreadsheets. Teams create manual workarounds because they’re faster than fighting the system. Over time, the business starts operating around the ERP instead of through it.
That’s usually the point where sponsors start wondering why the expected value never showed up. The implementation technically “succeeded”, but the operating model never really changed. And when that happens, a lot of the upside tied to the investment never materializes at all, especially at exit.
When it gets treated as a one-time investment, more often than not the EBITDA expansion that justified the project never materializes. Worse, the system slowly drifts out of alignment with the business. And ultimately you fail to unlock the value from it at exit.
Go-live isn’t the end of the ERP investment. In a lot of ways, it’s the beginning. The real value creation work starts once the system is live and the business has to actually operate through it day after day.
In this article I want to walk through how operating partners can shift from underwriting an implementation to underwriting a value creation roadmap.
The CapEx Trap
Typically in deal models the ERP implementations are underwritten as discrete capital projects. But what doesn’t get modeled is what happens after go-live.
That is the trap. The model captures the cost of implementation but not the work needed after go-live to turn that system into better margins, stronger cashflow and scalable growth.
Once the project closes, the system moves into “run” mode. The PortCo’s internal IT team picks up day-to-day support. Any maintenance costs are treated as discretionary OpEx, and often compressed during the next budget cycle.
It’s understandable. They were sold a system. That system is deployed. Now it’s mainly about keeping the lights on.
The problem is that on day one, your new ERP system is at best a stable platform that mirrors how the business works.
Often it’s not even that. Early go-lives are often fragile. They have incomplete data migration. They’re only being used by part of the business. There’s a backlog of decisions that were postponed. The CapEx project gets them to the starting line, but not the finish.
Because of this, three things tend to happen predictably:
- User adoption stalls. No one is reinforcing the new processes or fixing the friction points. The system won’t be perfect out of the gates, but that isn’t anticipated.
- The system stops adapting. As you scale or absorb bolt-ons, the ERP becomes a constraint vs. a platform.
- No one owns the outcome. IT probably owns the system. Operations owns the process. Finance the reporting. Value creation sort of falls into the gap between them.
Part of this is an incentive thing. Most implementation partners are incentivized to reach go-live, not necessarily to maximize operational outcomes 24 months later. Their whole model rewards project completion. But your model rewards EBITDA expansion and exit value. They’re not the same thing.
Where the Value Actually Lives
In our experience, the real EBITDA impact of an ERP investment shows up between 12 and 24 months after go-live. That isn’t to say there’s no value created. But that value tends to accrue in stages.
The good news is, if you know that and expect it, you can plan for it. Each of those stages can have measurable milestones, which can be underwritten and tracked.
It often looks something like this:
Months 1-6: Stabilization.
You get the data in a solid place. You make sure folks adopt it across the organization, rolling out progressively. The inevitable bugs and edge cases get worked through. You’re not generating material EBITDA improvements. You’re mostly making sure the thing you implemented is working well and getting used.
Months 6-12: Standardization.
You turn your attention to some of the processes that were customized for legacy reasons, getting them aligned with the system’s intended workflow. You iteratively tackle the manual workarounds. You consolidate reporting. You start to see efficiency gains, but often they’re still modest. Finance will probably notice them in the close cadence and headcount conversations more than in board-level EBITDA movement.
Months 12-24: Optimization.
Three places we see value unlocked most often:
- SG&A leverage. When processes are standardized and manual stuff gets truly automated, you can scale revenue without proportionately scaling back-office headcount. This is the most direct path from ERP optimization to EBITDA. And it shows up across the organization – finance, customer service, procurement, and operations.
- Working capital optimization. Inventory parameters, MRP settings, and order-to-cash workflows hold cash hostage when they’re not tuned. Tuning them releases that cash. The connection to cash-on-cash returns and IRR is direct, and it’s one of the most underrated ways an ERP impacts deal performance.
- Exit readiness. Acquirers pay a premium for certainty. An actively managed ERP shows up in diligence as audit-ready financials, a demonstrated capacity to integrate bolt-ons efficiently, and lower perceived operational risk. All of which impacts multiples.
Each of these stages can have defined KPIs, checkpoints, and can be tracked against the original deal thesis. For example:
| Stabilization | Standardization | Optimization |
| – % of business units live on core workflows – user adoption rates – reduction in spreadsheet dependencies – master data accuracy – ticket volume trends – order/invoice exception rates – financial close reliability – inventory reconciliation accuracy – training completion – backlog burn-down of deferred implementation decisions | – number of legacy workflows retired – manual touch points removed – reporting consolidation – procurement standardization rates – workflow cycle times – reduction in duplicate systems/tools – close cadence improvement – reduction in customizations – inventory planning consistency across sites/business units | – SG&A as % of revenue – revenue per back-office FTE – inventory turns – DSO / working capital metrics – procurement savings – forecast accuracy – margin leakage reduction – integration speed for bolt-ons – EBITDA contribution from automation initiatives – cash conversion cycle improvements |
But this only happens if you underwrite it that way in the first place. And if you have a plan for making it happen (hint: it can’t all fall on IT’s shoulders.)
Reframing AMS
This is where Application Managed Services comes in. And yes, I can picture the eye rolls. “Isn’t this just consultants creating recurring revenue for themselves?” You should of course be skeptical of any partner arguing for indefinite managed services spend.
AMS sounds like an IT contract. Tickets, SLAs, uptime guarantees. Which made sense when the conversation was about keeping a server running. But that doesn’t have to be what AMS looks like. It shouldn’t in a PE-backed environment.
AMS can be an EBITDA protection mechanism. After go-live, somebody still has to own optimization. Somebody has to keep pushing adoption, refining workflows, fixing friction points, and making sure the business is actually operating through the system it invested in. Otherwise, the organization slowly drifts back toward spreadsheets, manual workarounds, and disconnected processes. We see it happen constantly.
Most mid-market portfolio companies don’t have the internal expertise to continuously optimize a complex ERP over a multi-year value creation cycle. And you can’t really solve that with additional headcount, because it’s fundamentally a capability issue.
The skills required to optimize Infor’s Industry CloudSuite (M3, LN, SyteLine, SX.e) or another tier-one ERP across a 24-month window usually aren’t resident in-house (and honestly, probably shouldn’t be). They tend to live with partners who have seen these patterns repeatedly across multiple businesses and operating environments.
Of course, this implies a very different kind of AMS relationship. The traditional AMS model is reactive. A user logs a ticket, the partner resolves it, the SLA gets met. That may keep the system running, but it doesn’t necessarily help the business capture more value from the investment.
A value-driven AMS model looks different. Optimization is sequenced against a defined roadmap. Workstreams are organized around order-to-cash, procure-to-pay, inventory management, financial reporting, etc. Each work stream has its own KPIs tied to operational outcomes, not just system uptime.
The AMS roadmap should also align with the hold period. If you’re a PE sponsor with a five-year horizon, the optimization work in year two should look different from the optimization work in year four.
When AMS is structured this way, it helps reinforce the operating discipline that actually realizes the EBITDA the deal model promised. It’s the old people > process > technology stuff, with a recognition of the technology part actually works.
In short, we believe ERP modernization is fundamentally an organizational transformation problem disguised as a technology project. And org transformation requires something more than what a traditional AMS vendor can provide.
A Word on Deal Partners
Operating partners aren’t the only folks this matters to. Deal partners care about the same outcomes through a different lens – specifically how the diligence and underwriting process treats the ERP question.
We’ve already talked about how most deal models insufficiently account for the ongoing cost of optimization and/or the EBITDA contribution of post-go-live work. Because of that, deals get underwritten with optimistic assumptions about how quickly the ERP will deliver returns. And when those returns don’t materialize on the assumed timeline, the response is usually to compress OpEx rather than to accelerate optimization. That’s the wrong direction.
Ironically, the moment sponsors become disappointed in ERP returns is often the exact moment additional optimization investment would generate the highest marginal return.
The ERP question deserves more than a CapEx line in the model. It deserves a value creation roadmap, with the same level of rigor applied to operational levers like pricing or commercial strategy. And that roadmap should be built beforethe deal closes, not after.
Increasingly, we’re also seeing sponsors think about ERP modernization at the portfolio level rather than the individual PortCo level. Modernization creates the opportunity not just for operational improvement inside a single company, but for repeatable playbooks around reporting, automation, bolt-on integration, and AI enablement across the portfolio itself. Which makes ERP become a genuinely scalable operational infrastructure advantage.
Closing Thought
An ERP investment can certainly create value. But the initial investment just makes it possible. What turns possibility into EBITDA is the operating discipline that comes after go-live.
Treating ERP as a one-time CapEx leave most of that value on the table. If you treat it as a value creation system, with active management aligned to the deal thesis, you can capture it.
