How are analytics helping to improve exit outcomes?
Data and analytics can drive better outcomes at every stage of the private equity value chain, from management of portfolio companies to better decision-making at exit. But this requires investment both in technology and talent.
Analytics at the fund level
PE firms are using analytics tools to uncover critical insights on both the way into and out of portfolio investments. While most (87%) of firms say they used analytics to make their latest exit decision, they also point out that most value was created during the diligence process prior to acquisition and in pre-sale preparation at exit.
But many are still working through this process: applying data-driven analytics consistently in their portfolio reviews is still a significant issue for 80% of PE firms — up from 64% last year.
Data standardization is also a challenge for PE firms — working with dozens or even hundreds of portfolio companies across multiple industries, each with their own KPIs and reporting protocols, makes it difficult to get an overall view. However, firms have made progress — 75% of PEs now have access to portfolio management tools that enable them to standardize reporting across the portfolio, while two-thirds (66%) use technology that gives them real-time access to management performance.
At the portfolio company level
How can firms use data and analytics to drive EBITDA and growth to position an asset for sale? And how can analytics help sellers present the value story to buyers?
Many firms are improving their use of data, but with tacit acknowledgement that there is room for improvement. Less than a third (30%) say they are very effectively managing portfolio businesses real-time and capitalizing on customer and margin opportunities. Less than a quarter (22%) are very effective at using data tools to position and validate their businesses for potential buyers. For example, social media analytics can be applied to transaction scenarios to uncover and anticipate trends throughout the portfolio. “Social listening” — where data from social media channels are captured and reviewed — can monitor customer buying patterns and preferences, as well as spotting and rectifying reputational risks and customer complaints before they get out of hand.
Giving potential buyers access to portfolio business data makes a big impression. According to 66% of PE firms, providing more detailed information — including the outputs from advanced analytics exercises such as stress testing and predictive modelling — can help underpin the valuation and provide an evidence-based value story during an exit. Sales volumes, customer churn and pipeline are important, but items like customer service and satisfaction — key indicators of both vulnerabilities and success — should also be on management’s radar.
The market continues to offer opportunities to trade assets at attractive valuations, with PEs looking to take a more opportunistic approach to divestments.
However, to maximize value, PE firms will need to be prepared to move quickly when these opportunities present themselves. They also need to be adaptable, as they expect a shift in buyers — including more strategics — competing for their assets.
PE firms are building up their exit playbooks, with more discipline and rigor in the portfolio review process to prepare for their next wave of exits.
In building, executing and monitoring more wide-ranging value creation strategies for each asset, PEs can articulate a detailed value story to buyers.
Analytics is providing a huge opportunity for PE firms, with many only just beginning to tap its potential. Analytics tools provide a way to make more informed decisions throughout the exit life cycle, from identifying long-term growth strategies for portfolio businesses to securing greater divestment value.