Private Equity’s Struggle to Quantify Digital ROI, According to Lee McCabe

In a recent LinkedIn post, Lee McCabe delves into a persistent challenge facing private equity firms: the difficulty in directly linking digital transformation investments to tangible increases in EBITDA. McCabe, a figure associated with Claymore Partners, highlights that while the desire for digital upgrades is widespread, quantifying their financial impact remains a significant hurdle.

According to McCabe, the most challenging discussions often revolve not around selecting technology, but proving its value in concrete financial terms. He observes:

“Everyone says they want digital transformation. Everyone wants better data, better systems, better reporting, better lead flow, better conversion, better customer retention, better pricing visibility. Fine. Now tell me what any of that is worth. Not in theory. Not in a vendor demo. Not in a strategy deck with coloured boxes and a lot of optimistic verbs. In EBITDA.”

The EBITDA Disconnect

McCabe argues that the gap between ambition and execution lies in the inability to translate theoretical benefits into measurable EBITDA improvements. He poses critical questions that often leave stakeholders silent:

• How much margin improvement comes from better call routing?
• How much revenue lift comes from faster speed to lead?
• How much churn reduction comes from cleaner customer data?
• How much pricing discipline comes from actually seeing the numbers before month end?
• How much SG&A comes out when the business stops paying people to manually patch together nonsense from five systems that do not talk to each other?

The author points out that this struggle leads to digital initiatives being categorized ambiguously, often falling into a grey area between genuine growth strategies and costly experiments. As Lee McCabe states:

“This is the bit private equity still struggles with. They know digital matters. They just cannot always connect it to enterprise value in a way that survives contact with an IC memo or a board meeting.”

Beyond Modernity: Value Creation Through Impact

McCabe emphasizes that the value of digital tools is not inherent in their modernity or aesthetic appeal. A new CRM, a sophisticated BI dashboard, or an updated website only creates value when they demonstrably alter key commercial metrics. He elaborates:

“A better CRM does not create value because it is modern. A BI tool does not create value because the dashboard looks clever. A new website does not create value because the management team finally stopped using something built in 2016 by a cousin of the founder. It creates value when it changes revenue, gross margin, conversion, retention, pricing, labour efficiency, or working capital in a way you can measure.”

In essence, McCabe contends that digital transformation is not a separate entity from value creation but a direct driver of it. He concludes that without a clear, measurable link to EBITDA, digital investments risk becoming mere distractions rather than essential levers for growth and profitability.