I think it is fair to say that digital due diligence is not something many private equity firms gave much thought to ten years ago. Has that changed, and if so, why?
Private equity firms have done a bit of digital due diligence here and there historically, but it is was always bundled up as an additional part of the commercial due diligence. That has changed over the last 12 months and digital due diligence has become a separate discipline in its own right.
There are broad trends behind this. Firstly, the proliferation of social media has made a reputational assessment very important for investors. Technology has transformed the way companies are regarded by their customers and employees and investors need to understand that.
Secondly, technology and big data are now integral to any growth strategy. Buyers want to map out how effective a target company is at identifying potential customers, drawing customers in and converting those touch points into actions.
All companies create and use large datasets. What excites private equity investors is that these datasets are usually easy to access, unbiased and reports or dashboards can be turned around quickly.
Given your digital focus, is most of your work on technology companies?
No. We have done work in health, retail, education, FS and industrials to name but a few. Irrespective of whether you are a B2C or B2B business, every time a customer wants to make a purchase they start their research online, and that leaves a data trail. Any company in any sector can use that data to understand customer behaviour, purchase intent, buying triggers and growth prospects. That analysis can then be mapped against how competitors are performing. It is not just a technology company thing.
In your work with private equity, are there certain things you look at in each deal, or is your work bespoke in nature?
Our work is bespoke and can range from doing a broad overview of a particular market to specific analysis of what data a company holds and how they use that data effectively.
In a market-mapping exercise we can provide a report on the size of market, who is rising and who is falling and track the performance of a specific target company relative to its peers.
When we are asked to consult on an individual company, we will use the detailed data to devise a strategy that will help them hit their KPIs. This might be geared towards looking at how best to influence customer behaviour or grow new verticals, or even where to build new premises.
We also do in-depth audience profiling to gain insight into what motivates customers and how other brands are getting it right (or wrong). This can save huge amounts of money post transaction as insights are based on such robust data that strategies can be launched with a high level of confidence that they will work.
When do firms usually bring you into a process?
For market-mapping exercises we usually get called in quite early and well before a firm is ready to make an offer for a company, but if I look back over the last year most of our work is done in the latter stages when a firm has gone into exclusivity and has access to the management team. In these cases we usually do work that interrogates management business plans, qualifies market size and makes recommendations on what marketing strategies to follow.
When a deal is in exclusivity and we can get access to a company’s data we can provide some very detailed advice on modelling, conversion metrics and how to improve the effectiveness of audience engagement.
Do you ever continue working with portfolio company after a deal closes?
We often stay on to work with boards to help them with points identified in the digital due diligence. A general observation about all due diligence is that it has moved on from just looking at the downside risk and is as much about the opportunity. Much of our work feeds into the 100-day plan and we will stay on to develop strategy and tactics and help companies convert audience engagement into actions.
What is your assessment of the digital knowledge within private equity firms?
There is a lot of talk around data and how it is used, and we are still in a phase of educating the private equity market about the value we offer. That said, firms do recognise that big data is changing business and when they work with us they are very clear on what they need.
They also like the fact that data is objective and measurable. We have recently launched a web platform that private equity clients can use to analyse portfolio company data such as brand equity, market penetration, marketing effectiveness and engagement against its competitors in real time. All from the outside in. No other service provider is doing this and it is a real game changer for digital knowledge. Private equity firms have shown huge interest in this.
This content was sponsored by One Four Zero