Legacy Tech Is Holding You Back: Boost Corporate Valuation Through Software Modernization

If your portfolio companies are still relying on outdated software, you’re leaving value on the table. Legacy tech is slow, fragmented, and expensive to maintain. It isn’t just a drag on operations; it’s a direct threat to corporate valuation, especially for Private Equity Groups (PEGs) looking to maximize returns at exit.

According to a SnapLogic survey, legacy tech upgrades cost the average business nearly $3 million in 2023, with compounding impacts on data infrastructure and AI readiness. Maintenance costs, siloed systems, and integration challenges are pushing more companies toward modernization, not as an IT initiative, but as a business necessity.

In this blog article, we explore how software modernization directly enhances business valuation and provide a practical roadmap for PEGs to integrate tech upgrades into their acquisition and exit strategies.

Modern Tech Maturity = Higher Business Valuation

Before diving into the "how," we must address the "why."

Corporate valuation can be assessed using EBITDA multiples, discounted cash flow, or comparable transaction analysis. Regardless of the method employed, it isn’t solely focused on revenue; it also encompasses risk and scalability.

Modernized platforms enhance audit readiness, deliver accurate real-time reporting, and demonstrate operational maturity — all of which reduce risk and increase buyer confidence.

When buyers see that a company is still using legacy platforms, it raises red flags:

• Rebuild risk: Will they need to rebuild from scratch?
• Scalability concerns: Can the system scale with future growth?
• Security & compliance: Is sensitive data secure and compliant?
• Talent availability: Can I easily find and retain the talent to support growth and innovate?
• Margin pressure: Will margins shrink as more users join?

In contrast, a modern, secure, and scalable tech stack is well-positioned to leverage available resources, driving innovation and market share growth.

Five Reasons Software Modernization Boosts Corporate Valuation

1. Improves Operational Efficiency
   Legacy systems are often paired with or require manual, slow, and error-prone operational processes, resulting in costly downtime. By replacing these with automated, streamlined, cloud-based solutions, companies reduce overhead and enhance productivity. This improves EBITDA, one of the key drivers of valuation in PEG environments.

2. Unlocks and Activates Siloed Data
   Older systems hinder the extraction and analysis of business-critical data. Modern platforms eliminate data silos, integrate reporting, and enable predictive analytics that drive smarter business decisions. This results in greater business value and more accurate investment valuation.

3. Increases Buyer Confidence
   Strategic buyers and institutional investors carefully examine tech stacks during the due diligence process. A clean, modern infrastructure signals that the company is low-risk and well-positioned for growth and innovation. It also enhances your company’s appeal during a competitive bidding process.

4. Enhances Security and Compliance
   Legacy systems often use out-of-support technology and are vulnerable to security breaches. Modernization enhances cybersecurity, ensures compliance with evolving standards, and minimizes risk exposure. These are factors that are increasingly impacting valuation in industries such as healthcare and finance.

5. Future-Proofs the Business for Growth
   Whether scaling operations, enabling digital transformation, or supporting M&A roll-ups, modern technology enables your company to adapt quickly. In an era where agility is a differentiator, scalable technology is an essential asset, not merely a nice-to-have.

The Cost of Doing Nothing: How Legacy Systems Hurt Your Bottom Line

The longer legacy systems remain in place, the more enterprise value erodes.

• Operating inefficiencies eat away at margins.
• Data blind spots prevent effective forecasting.
• Tech debt scares away potential buyers.
• And worst of all? Fixing it too late in the holding period often leads to a sunk cost with minimal to no ROI before exit.

How to Approach Software Modernization in a Portfolio Company

1. Include Tech in Due Diligence

Don’t wait until after the acquisition to assess the tech stack. Build technology assessments into your diligence process to identify red flags, such as unsupported platforms, inadequate architecture, vendor lock-in, or inadequate data accessibility.

2. Build a Strategic Modernization Roadmap

Identify which systems need upgrading, prioritize them, and establish a timeline for implementation. Ensure this roadmap aligns with your overall value creation strategy and anticipated exit window. A phased approach can minimize disruption while providing consistent benefits over time.

3. Prioritize Quick Wins

Not all modernization efforts require a complete overhaul. Begin with low-risk upgrades that have a tangible impact. Focus on changes that minimize friction and show a clear return on investment.

Modernization as a Strategic Lever, Not Just IT Spend

For PEGs focused on maximizing ROI, software modernization isn’t just about improving systems — it’s about enhancing improving. From operational efficiency to buyer appeal, modern tech unlocks hidden value across the board.

Looking to uncover opportunities hiding in your portfolio’s tech stack? Let’s discuss how a strategic modernization plan can drive better outcomes at acquisition and exit. Book a personalized consultation now.

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Use this spreadsheet to create and maintain an application portfolio and assess the cost, benefits, and effort of modernization options for each application. Alternatively, use it as a guide and store the information in your organization's knowledge management tool.

Read more in our How to Create an Application Modernization Roadmap blog post.