“Companies that are more sophisticated from a data perspective are also more valuable. They trade for a higher multiple. They probably have better growth trajectories than businesses that do not because they have a very cohesive set of operating parameters they're following.”
- Adam Coffey, 3-time CEO of PE-backed companies and #1 bestselling author of The Private Equity Playbook and The Exit Strategy Playbook
Data diligence offers private equity firms better insight into their target acquisition’s current use and potential use of data for growth and value creation. Diligence identifies the low-hanging fruit to immediately improve data visibility (to increase accountability to the growth plan and identify constraints and opportunities in finance and operations) and tactical steps to close the “data gap” (reference: 2022 NewVantage Executive Survey which found 91.7% of organizations report increasing data investment, while only 19.3% have established a data culture.)
Data diligence should include both a technical and strategic lens. In other words, proliferation of reports does not necessarily indicate effective use of data. Conversely, where strategic alignment on data is strong, a weak BI infrastructure will limit potential gains. An effective data diligence engagement should evaluate both elements against benchmarks:
Technical considerations of a data diligence audit include a target’s existing infrastructure, data sources, and reporting assets.
Strategic considerations include stakeholder alignment around key metrics, investment into BI skills and tools, and the maturity of the data culture.
Data diligence focused on leveraging data to increase value can create a compelling case during sign-to-close, quantifying the near- and long-term opportunities to capitalize on a company’s assets, and the cost, time, and resources needed to close the data gap.
Blue Margin partners with private equity firms to provide an assessment and rubric for the time, cost, and resources needed to address data gaps and poise the company for maximum valuation at exit, with minimal disruption to stakeholder schedules.
For further reading/listening: