As private equity (PE) leaders are adopting various strategies to safeguard and expand their businesses, one approach gaining significant attention is system and organization controls (SOC) reporting. The reason behind this growing interest is SOC reporting helps enable companies to protect and grow their business by meeting customer compliance requirements through enhanced transparency and the effective communication of robust internal control processes. Private equity portfolio companies (portcos) and their operating partners are particularly focused on safeguarding their financial performance, protecting their bottom lines, maximizing revenue (EBITDA), and ultimately working toward a successful exit.

SOC reports help demonstrate the strength of a company’s internal controls environment. There is a full spectrum of SOC reports: SOC 1, 2, and 3; SOC for cybersecurity; and SOC for supply chain. The type of SOC report a company may need depends on the opportunities at hand, risks they are looking to mitigate, and which stakeholders they are looking to provide assurances to. They are especially valuable for data-rich portfolio companies that deal with sensitive customer information, particularly those operating within technology, healthcare, financial services, as well as where these industries intersect – for example, healthtech, fintech, and insuretech.

Portco customers and other business stakeholders are increasingly expecting portcos to issue SOC reports, and for good reason: These reports offer a look into a variety of internal controls, including financial reporting, security, availability, process integrity, confidentiality, and privacy. By obtaining reports, a portco can gain a competitive edge by building trust and demonstrating value to its stakeholders while strengthening internal controls — helping to lessen the chance of unexpected challenges before exit.