The Black Box of IT Spend: 2025 Benchmarks for Private Equity

The "Average" Trap Killing Your EBITDA

If you ask a Gartner analyst, they will tell you the average company spends 3.6% of revenue on IT. If you take that number to the board meeting of your $50M ARR B2B SaaS portfolio company, you will look incompetent. If you take it to your low-margin manufacturing turnaround, you might be overspending by double.

For Private Equity Operating Partners, global averages are dangerous. They mask the two variables that actually matter to your exit multiple: Industry Nuance and the Run-to-Grow Ratio.

We consistently see portfolio leaders struggle with the "Black Box" of IT spend. You know the check is large, but you don't know if it's fueling growth or just keeping the servers from catching fire. In 2025, the problem has compounded. Gartner projects global IT spending will surge 9.3% to $5.75 trillion, driven largely by AI infrastructure pricing and shadow SaaS sprawl.

The symptoms of a misaligned IT budget in a portfolio company are silent but deadly:

• The "Keep the Lights On" Tax: Deloitte data shows that the average IT department spends 56% of its budget just maintaining business operations, leaving less than 20% for actual innovation.
• Shadow SaaS: Flexera's 2025 State of the Cloud report highlights that 68% of business units are spending more on SaaS than IT is even aware of. This is EBITDA leakage masquerading as "productivity tools."
• CapEx Confusion: With the shift to cloud and AI, what used to be depreciable hardware CapEx is now OpEx, hitting your EBITDA directly.

You cannot cut your way to growth, but you absolutely cannot grow if you are paying a 56% tax just to stand still. You need to know what "Good" looks like for your specific asset.

2025 IT Spend Benchmarks by Industry

Stop comparing your portfolio to the S&P 500. Compare them to their peers in the middle market. Based on data from Avasant, Gartner, and our own operational audits across PE portfolios, here are the reality-check ranges for 2025.

1. Software & SaaS (The "Product is Tech" Sector)

• Benchmark: 12% – 18% of Revenue
• The Nuance: In SaaS, IT isn't overhead; it's COGS and R&D. If your SaaS company is spending 4% on IT, you are accumulating massive technical debt that will kill your exit. The key metric here is not total spend, but R&D Efficiency. Are you spending on AWS idle instances, or developer velocity?

2. Financial Services & FinTech

• Benchmark: 8% – 12% of Revenue
• The Nuance: Security and compliance drive this floor. You cannot cheap out on SOC 2 or data governance here. However, legacy banking cores often trap firms in the "Run" cycle. Top-quartile performers push this down to 7% through aggressive cloud modernization.

3. Manufacturing & Industrial

• Benchmark: 1.5% – 3% of Revenue
• The Nuance: Margins are thin. The focus is ERP and Supply Chain visibility. If you see spend above 3%, it's usually a failed ERP implementation dragging on (a classic "Zombie Project").

4. Professional Services / Healthcare

• Benchmark: 4% – 6% of Revenue
• The Nuance: This is a headcount game. Spend here should be focused on billable utilization and automation. If spend is high but utilization is below 70%, the tech isn't working.

The "Run vs. Grow" Ratio

Total spend % is a blunt instrument. The sharper tool for an Operating Partner is the Run/Grow/Transform ratio.

• Distressed Asset: 80% Run / 20% Grow. (The IT team is a helpdesk).
• Stable Performer: 60% Run / 40% Grow. (Industry Average).
• Exit-Ready "Digital Vanguard": 45% Run / 55% Grow. (Automated infrastructure allows budget to flow to product features).

The Operator's Action Plan: From Cost Center to Value Driver

You don't fix a bloated IT budget by slashing 10% across the board. That's how you cause outages during due diligence. You fix it by re-architecting what you spend on.

1. Audit the "Shadow" Spend (Days 1-30)

Before you approve the 2026 budget, run a SaaS discovery audit. We frequently find portfolio companies paying for 5 different project management tools (Asana, Monday, Jira, Trello, ClickUp) across different departments. Consolidating these isn't just about saving $50k; it's about breaking cross-functional silos.

2. Attack the "Run" Costs

Why is maintenance 56% of the budget? Usually, it's manual labor keeping legacy systems alive. The high ROI move is often a one-time "Technical Debt Paydown" injection. Spending $200k now to automate a manual server patching process can save $100k/year in headcount indefinitely, expanding your EBITDA multiple.

3. Reclassify "Transformation" for the Exit Story

When preparing for sale, buyers will scrutinize your EBITDA adjustments. If you can prove that 30% of your IT spend was "One-time Transformation" (e.g., cloud migration, ERP implementation) rather than "Recurring Maintenance," you can often add that back to EBITDA. But you need the data governance to prove it.

Summary

Your goal isn't necessarily to spend less on IT. It's to spend better. A company spending 10% of revenue on IT with a 50/50 Run/Grow split is infinitely more valuable than a company spending 3% with a 95/5 Run/Grow split. The former is a technology platform; the latter is a melting ice cube.