Due Diligence to Accelerate Data Value Creation
Data and analytics is a major driver and source of great value for private equity firms. The best private equity firms know the full power of data and analytics. They realize that portfolio company enterprise data is typically the crown jewel of an acquisition or deal target.
Data and analytics are also the foundation of financial and operational transformation . Quickly pulling data from their portfolio companies, and consolidating it into actionable information, will enable and accelerate financial and operational value opportunities, driving up EBITDA. Even better, the creation of data monetization revenue opportunities unlocks hidden sources of value creation. And down the road, a data-driven organization will always yield much higher financial valuations and returns to their investors.
Most firms doing due diligence on potential targets will only do basic due diligence. They will focus on assuring financial valuation and risk assessment. Therefore, most PE firms will conduct standard IT due diligence, analyzing expense budgets, hardware and software capital assets, license and service contracts, and headcount/staffing. They will seek to understand IT architecture, as well as assess the network in terms of capability. Because it is top of mind, the due diligence effort will also heavily focus on cyber and network security, and the architecture built to protect the portfolio company and its data. Typically, they will declare the due diligence effort complete.
Beyond classical IT due diligence, most dealmakers try to understand their data assets once the deal has closed and they begin operating the acquired company. However, best practice says otherwise. To accelerate the data and analytics value creation curve, it really starts at data due diligence. Precise data due diligence serves as the foundation for portfolio data strategy, as well as uncovers hidden sources of potential and opportunistic strategic value. Doing data due diligence will give the PE firm and portfolio company a running start on data value creation once the deal has closed.
What should deal firms look for when doing data and analytics due diligence? Here are key areas and questions for investigation and analysis when investigating a target portfolio company.
Step 1: Determine the target company’s current overall approach to managing and analyzing its data.
Develop an understanding of the target company’s current approach to accessing and analyzing their data. Understanding their current approach will let you know the effort needed to accelerate potential data value creation.
