How Data Analytics Helps Private Equity Accelerate Value Creation at Due Diligence

Why private equity firms are increasingly deploying data analytics to help them buy right and buy smart in a challenging market.


It comes as no surprise that the market for private equity acquisitions continues to be robust. Global deal value increased from $594.54 billion in 2015 to $825.77 billion in 2018. Last year was a little slower, but there were some large transactions.

Buoyed by low interest rates, an eager supply of deal financing, and a prolonged period of economic growth, PE has plenty of dry powder and has proved to be resistant to the impact of trade wars, tariffs, and political uncertainty. However, not all factors are positive: Valuation multiples remain high and there’s considerable competition among PE firms to find and acquire “diamonds in the rough.” At the same time, corporate strategics looking for suitable acquisitions to support their growth are offering a viable alternative for firms considering a sale.

With these competitive factors, how can PE firms gain an advantage over their competitors, make smarter buying decisions, and speed up the value creation process? The answer lies in operational due diligence (ODD) and the timely use of data analytics and artificial intelligence (AI) in assessing target companies.

How to pick winners in a challenging market

PE firms across all industries are increasingly making use of data analytics and operational due diligence to:

  • Identify and screen fast-growth businesses
  • Determine with confidence where the opportunities for value creation lie
  • Quickly identify potential deal breakers and underlying commercial risks

In recent years, we’ve seen a number of data analytics tools emerge that are capable of significantly accelerating the process. These tools allow data extracted from multiple entities to be organized, assembled, cleansed, and visualized. AI tools are also able to scour thousands of files and contracts, targeting keywords and clauses, further speeding up the ODD process. This is particularly important for firms with multiple add-ons and minimal integration.

The importance of TVO diligence

Total Value Optimization (TVO) operational due diligence, based on a foundation of data analytics, cuts through the noise and gets straight to the facts that sound decision-making is based on. It helps PE firms identify target companies, analyze their potential, and implement the necessary cross-functional processes to accelerate time-to-value creation.

Due diligence provides fast, accurate visibility of the financial information PE firms need. What differs with a total value approach is its ability to identify supply chain and operations-oriented value creation opportunities both pre-and post-acquisition. That enables PE executives to quantify EBITDA (earnings before interest, taxes, depreciation, and amortization) improvements together with working capital risks and opportunities. These are coupled with an implementation road map for the first 180 days and beyond. The emphasis is on quick wins to support positive internal rates of return (IRRs) in year one.

Driving value throughout the lifecycle

While many PE executives are realizing the value of technology throughout the operational due diligence process, less adept companies are continuing down the well-worn acquisition path. In today’s world, this could mean losing out to their smarter and more nimble competitors who are already using data analytics and AI to generate and close more transactions, earn higher rates of return, and lower risk.

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