Moving Decision-Making Upstream: The Value of Data Insight Acceleration for Private Equity Investors and Portfolio Companies

Moving Decision-Making Upstream: The Value of Data Insight Acceleration for Private Equity Investors and Portfolio Companies

Private equity investors and their management teams have faster access to more external and company data than ever before—whether it’s evaluating potential acquisitions, supporting portfolio company operations and growth investments, understanding portfolio company pricing optimization opportunities, or identifying profit optimization and operating opportunities.

While there is more data available to support decision making, the additional data available is typically more granular (transaction log, product-level price data, site-level data, employee-level data for example) and as a result of much higher volume in many instances.

In addition, available data in these forms is typically messy due to inconsistent variable definition, inconsistent structure, siloed architecture, and varying accuracy and quality. This limits the utility of the additional available data, especially when overlaid with a need for faster decision making and limited resources to evaluate. Combine this with a talent base that is overstretched and typically reliant on an inadequate spreadsheet-based analytics approach, the result is significant underutilization of the potential insights buried in company and deal data.

But in difficulty there is opportunity. Funds and management teams that can navigate messy, imperfect, and high-volume data to support critical decisions have an edge, both in ability to select and win deals, and in portfolio company value creation. Stax analysis around the value of information in the private equity context highlights value around several key dimensions:

  • Information is more valuable in difficult markets than favorable markets
  • Getting to conviction quickly in the right situations is of equal or greater value than getting to rejection quickly (focusing resources on options that warrant)
  • There is a steep curve to the increasing value of information with greater accuracy (perhaps obvious, but making the right decision is worth more than simply completing a process step)

Those that can marshal the right resources to rapidly and accurately transform imperfect data into insights develop significant advantage and drive higher returns. The more challenging the data situation, the more potential value exists, and the greater potential advantage to uncovering timely insights for application. Success requires a unique combination of elements, both internal and external:

  • Flexible resource access to match stage of deal, data, and situation
  • Combination of varied specialized capabilities: business and strategic context, data science and advanced analytics, data prep and cleaning
  • Access to external data sources and capabilities, to put internal company data insights in context
  • Access to efficient labor source for the inevitable manual data cleaning required (ideally with partial automation tools to support)
  • Processing and analysis tools and capabilities not based on traditional spreadsheet methods

The most successful approaches to bringing together this set of capabilities involve a combination of internal and external resources. While use of third-party partners should be part of the consideration, be mindful that developing too much reliance on these partners may be counter-productive in the long-term. The ideal partner will provide support and access to flexible, specialized resources, and will do so in a way that includes transparency and access.

With transparency and access comes the ability to learn, evaluate, and continually determine which elements to bring in-house, and where to rely upon outside resources. Over time, this approach develops portfolio companies, deal teams, or portfolio operations teams and utilizes partners to continually stay ahead on methods, data sources, specialized capabilities, use cases, and most importantly, creates an edge by bringing better decision making upstream, based on uncovering hidden insights in company and external data.

Stax has been gathering actionable and data-driven insights for over 20+ years, bringing helpful solutions and saving time for our many global clients. While we may be considered a third-party, our consulting process enables you to make better decisions for the future— even long after we’re gone. You can read more about our consulting process here.

About the Author: Mark Bremer is Vice Chairman of Stax Data Analytics including oversight of the accompanying innovation and technology initiatives. He also is active in client relationships and engagements, helping to develop quantitative understanding of industry dynamics, market, and customer segments, and how best to pursue growth and make investment decisions through data analytics.

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