Why modern controls matter in private equity ERP finance transformations

Talking points

• Private equity portfolio companies are undertaking enterprise resource planning (ERP) finance transformations and cloud migrations at increasing rates.
• Without effective ERP internal controls, transformation can expose portfolio companies to significant risks such as errors, operational disruptions, and delayed growth. 
• Integrating modern internal controls into the transformation workstream can help manage and mitigate risks throughout the cloud migration life cycle.

It’s no secret that rapid advances in cloud computing continue to shake up the ERP finance transformation landscape. Industry data shows that cloud ERP implementation  and system migration efforts are on the rise across a spectrum of industries.¹ Even private equity, once known for avoiding ERP finance transformation, is jumping on board. 

Historically, many PE firms saw ERP transformation as an unnecessary distraction that was too time-consuming and costly to tackle within the typical investment holding period.² Today, however, many PE investors recognize that modernizing ERP systems can improve data integrity and unlock value. According to a recent PE industry survey, a portfolio company’s valuation can suffer if its ERP system is outdated, with the majority of respondents anticipating a valuation drop between 10% and 20%.³

Why internal controls matter

With this in mind, more PE executives are open to exploring strategic finance transformation investments, such as scaled ERP platforms, for their portfolio companies when those investments align with the PE’s desired exit strategy. In connection with these ERP investments, it is important to modernize the underlying internal controls and business processes supporting those systems. This blog explores how a modernized control framework can serve to mitigate financial and operational risks and unlock the true value associated with these ERP enhancements. 

Meeting rising private equity complexity

Companies across a range of industries face mounting pressure to keep up with escalating market demands, such as achieving greater operational efficiency, handling increased digital transactions, and integrating data across diverse platforms. But portfolio companies must also navigate additional challenges common to private equity, including:

• Agility: Portfolio companies need operational agility to quickly change business strategies and pivot to new business models.
  
• Value creation: Portfolio company CFOs need to focus on driving top-line growth and optimizing capital utilization through technology. 
• Strategic decision-making: Company executives also need timely, accurate, and reliable data to make better decisions about business development and to achieve six-month, 12-month, and long-term strategic milestones. 
• Cost management: Portfolio companies face constant pressure to cut costs while providing value. 

Cloud ERP migration benefits 

To meet these rising challenges, more portfolio companies are upgrading their technology stacks by migrating to cloud ERP platforms, which can offer better financial and operational data management performance and agility. While an ERP cloud migration may not be right for every exit strategy, it can be especially important for portfolio companies planning an initial public offering or spinoff, where expectations are higher for advanced systems and continuous operation. 

Managing cloud ERP migration risks

However, migrating to the cloud brings new complexities and risks    specific to cloud environments, especially around data management, system security, and regulatory compliance. What happens when these risks aren’t effectively controlled? 

During cloud migration, inadequate controls, which are typically manual or outdated, can increase the risk of data loss, corruption, and unauthorized access. After migration, control gaps can create persistent financial reporting and operational issues, including errors, prolonged close cycles, and reconciliation challenges. The consequences can be severe, ranging from data breaches and intellectual property theft to regulatory penalties and eroded stakeholder trust. Insufficient controls can also create another kind of risk—that the portfolio company won’t realize the true value of the new system.

Enhancing ERP controls with game-changing technology

Leveraging system accelerators such as artificial intelligence (AI) in ERP systems to automate controls can increase confidence that risks are identified and mitigated. Generative AI, autonomous AI agents, robotic process automation, and machine learning technology can be strategically applied to enhance critical accounting, IT, governance, and operational control processes. Examples include intelligent access control; real-time integration monitoring; audit and SOX readiness and automation; and compliance monitoring, mapping, and framework alignment.

Internal control leading practices

In addition to leveraging automation, effective internal controls require careful governance, design, and implementation. Deloitte’s internal controls and governance framework highlights leading practices for building a modern, compliance-ready controls environment during a cloud ERP system transformation. It includes these steps:

• Conduct a risk and controls assessment tailored to PE complexities.
• Proactively design and embed controls early across the transformation workstream.
• Automate control frameworks using accelerators such as AI to reduce manual processes.
• Foster cross-functional collaboration among IT, finance, and compliance teams.
• Define documentation retention requirements and ERP compliance  checklists.
• Continually update and test controls as technology and regulations evolve.
• Invest in user training and change management.

What role can Deloitte play?

Deloitte’s dedicated Audit and Assurance risk and controls professionals can advise you on ways to embed modern, compliance-ready ERP internal controls throughout the design and development of your ERP system. To learn more, read our new article on navigating cloud ERP transformation with strong internal controls. You can also contact your Deloitte representative or visit Private Equity Audit and Assurance Services for more information.

Endnotes

¹ Oyku Ilgar, “2025 cloud ERP trends according to industry giants,” Forbes, January 21, 2025.

²  Jason Menghi et al., “Internal controls: A hidden driver of value creation at portfolio companies,” Deloitte, December 2023.

³  Moritz Hagenmüller et al., “Learning to love ERP migrations in private equity,” Boston Consulting Group, December 3, 2024.  

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