The impact of digitalization on the value of companies

Digitalization is no longer a trend, but a structural factor of competitiveness. In Portugal, the digital sector already represents a significant contribution to the economy, sustaining around 3 million jobs and generating 90 billion euros in gross value added, with a cross-cutting impact on all sectors. But when we talk about company valuation, the critical question is: what does digitization actually increase in value and what changes almost nothing?

This article explains, in a clear and practical way, how digitalization influences the valuation of an SME, with real examples and guidelines for entrepreneurs and consultants.

 

1. What Really Increases a Company’s Value with Digitalization

• Operational efficiency and cost reduction

The adoption of digital tools such as automation, cloud, management software, and AI increases productivity and reduces operating costs. In Portugal, AI is now considered one of the main drivers of productivity and business disruption.

Impact on valuation:

• Increased future cash flows
• Operational risk reduction
• Improved margins

Practical example: A logistics company that automates route planning reduces fuel costs and delivery time. EBITDA improves and value increases.

 

• Scalability models and recurring revenues

Companies that digitize processes are able to grow without proportionally increasing costs. Models such as SaaS, subscriptions or managed services are particularly valued.

Impact on valuation:

• Top multiples
• Greater predictability of revenues
• Less reliance on one-off sales

Practical example: An IT company moving from one-off projects to managed services agreements (MSP) increases its market multiple.

 

• Quality of information and decision-making

Digitalization improves the quality of financial and operational data. Portugal now has robust digital infrastructures, with almost total coverage of 5G and high-speed networks, facilitating the adoption of advanced management systems.

Impact on valuation:

• Reduction of errors
• Greater transparency
• Lower perceived risk in due diligence

Practical example: An SME with integrated ERP is able to present reliable financial statements, reducing price discounts during negotiation.

 

• Competitiveness and differentiation in the market

Digitalization allows you to create faster, safer and more personalized products and services. The digital sector contributed to an estimated 13% increase in Portuguese GDP, demonstrating its direct impact on national competitiveness.

Impact on valuation:

• Increased market share
• Increased capacity for innovation
• Attract talent and customers

 

2. What does NOT change (or changes very little) in the value of the company

• Having technology… without truly integrating it

One of the biggest problems identified in Portugal is the superficial adoption of technology. There is software, but there is no true integration into the processes.

Impact on valuation:

• None
• Technology becomes cost, not value

Example: Implementing a CRM that no one uses doesn’t increase value, it only increases cost.

 

• Digitalization without improving management

The study points to a “structural blockage” linked to the lack of quality of management and the difficulty in aligning people, processes and technology.

Impact on valuation:

• The risk remains high
• Multiples do not increase
• Cash flows don’t improve

 

• Investing in technology with no measurable return

Digitizing by fashion (AI, cloud, automation) without clear metrics does not generate value.

Impact on valuation:

• Zero
• Market results value, not investments

 

• Lack of digital skills in the team

Portugal continues to face challenges in training in basic and advanced digital skills, both in the population and in companies.

Impact on valuation:

• Increased operational risk
• Reliance on external consultants
• Slow transformation

 

3. How digitalization goes directly into the assessment

• Cash flows (DCF): Digitalization that reduces costs or increases revenues directly improves intrinsic value.
• Risk (WACC): Well-implemented digital processes reduce operational risk and owner dependency.
• Market Multiples: Companies with digital, scalable models and recurring revenues have higher multiples.
• Due diligence: Digitalisation increases transparency and reduces discounts applied in case of uncertainty.

 

4. Practical checklist: digitalization that really increases value

• Automated and integrated processes
• Reliable, centralized data
• Recurring revenue models
• Clear performance indicators
• Proven cost savings
• Digitally qualified personnel
• Technology aligned with strategy

 

In short, digitalization has become one of the most determining factors for the value of companies, but not everything that is “technology” generates a real impact. The essential thing is how digitalization improves processes, reduces costs, increases predictability and reinforces the quality of information. When well implemented, it creates value; When it’s just cosmetic, nothing changes. This article shows, in a clear and practical way, what really contributes to increasing the valuation of an SME and what remains exactly the same.

 

ValuingTools supports companies and consultants to measure, understand and increase the value of companies by integrating financial, operational and strategic data into a simple, rigorous and results-oriented process. If you want: valuate the real impact of digitalization on the value of your company; Identify valuation opportunities or prepare the company for sale, succession or growth, talk to us and find out how much your company is worth and how you can value it.