The power of Data Analytics that private equity managers are missing
Updated: Dec 16, 2020
Private equity managers have a tonne of data in-house to empower their teams make better decisions. But the opportunity remains largely untapped. This is because data is not systematically collected or stored. Information is fragmented or lost in static documents where it is difficult to connect the dots. Private equity managers are missing out on the power of Data Analytics.
Imagine if this could change. In a world where Private equity managers are able to leverage the power of Data Analytics, in-house teams - investment, legal, tax, finance – can be empowered to make incrementally better decisions. All of the below, and more, would be possible in little to no time:
1. Ability to analyse key data points in completion accounts or locked-box' across completed deals - e.g. average working capital or net debt adjustments agreed as a percentage of EV across sectors, geographies or asset class.
2. Ability to compare completion accounts or locked-box on the way in (at acquisition) and on exit. What are the key differences? Is anything off-market? Was a risk missed in the due diligence on the way-in? did a risk factor creep up during the period of ownership?
3. Compare financing terms agreed on prior deals by lender, sector, geography or asset class.
4. What were the management incentive structures used and key terms agreed on cap tables with management teams.
5. In-house tax and legal teams should be able to access acquisition structures used by geography or asset class.
6. Analyse deal costs – by type, advisor, sector, geography or as percentage of EV – across completed deals.
7. Ability to review key clauses in the contracts on prior deals to help with negotiation and thinking on current deals.
The possibilities from Data Analytics for private equity managers are endless and the outcome powerful. Private Equity already has the data to leverage this power. The starting point is establishing processes and systems that enable data to be captured and stored systematically.
The amazing fact is that investing in these processes and systems can bring far greater value; Data Analytics is simply one of the by-product.