NorthEdge’s Lucie Mills and James Hales discuss how the mid-cap GP is using technology to support deal origination, identify potential deal targets and enrich various interactions.

RD: How is NorthEdge incorporating technology into the front- and middle-office functions of deal origination, deal execution, portfolio management and value creation?

James Hales: Deal origination in the midmarket is incredibly competitive and everyone is always chasing the same ball. Every manager is working to find assets off-market or go into adviser-led processes with some kind of advantage. Several managers are now using software to help deal teams to identify potential deal targets by sector and size.

We have worked on developing our own AI and machine learning tool for about seven years now. We first worked with Peak, an AI consultancy in Manchester, to get the platform off the ground, and now we are working with Alliance Manchester Business School to develop the technology further. We work closely with Richard Allmendinger, a professor of applied AI.

Fundamentally, we are trying to develop a tool that uses a variety of financial metrics and selection criteria to catch businesses with high potential early, in a more sophisticated way, so that we can build relationships with relevant businesses that we may invest in.

Lucie Mills: We have also built a platform for our portfolio community called Nexus. It is a proprietary product that we built ourselves, exclusively for our portfolio company management teams. Portfolio company chief executives, chief financial officers, sales leaders, marketing leaders and technology leaders all use it, and it also interfaces with our operating partners network. 

Nexus has been a really efficient way to bring relevant groups of people together across the portfolio to share knowledge and information and facilitate networking. The technology is there to make resources and contacts available to portfolio company teams without overwhelming them. Nexus is a ready-made content hub – covering everything from pricing strategies and recruitment to customer engagement and supply chains – that portfolio companies can draw from whenever they require it.

As James highlighted, a general point of principle for us when using technology is that it is there to complement the relationship-focused part of our work. 

We are not trying to replicate everything we do, but rather harness technology to give us more insight, help us get to things quicker and support the building of relationships with potential deal targets and portfolio companies. 

James Hales: When speaking to a management team, a tool like Nexus provides a clear demonstration of how we can add value. Lots of managers talk about value creation but don’t have anything tangible to evidence that. With a platform like Nexus, we do. It is a massive unique selling point.

One area where Nexus has been especially helpful is around ESG. Management teams have been far more challenging around ESG, so the ability to be able to showcase Nexus to them, where they’ve got access to all our ESG reports as specific examples of how we help companies to add value using ESG is very powerful.

The reality is that there are many suitors out there for management teams to choose from, so being able to point to specific examples of what we can offer is a key point of differentiation.

RD: As you have developed your own proprietary technology, what have you learned with respect to making sure the technology is doing what it is supposed to?

Lucie Mills: Let me answer that in terms of how we use technology to support portfolio management across the firm.

The key principle is to keep things as simple as possible. We have made a conscious decision that we want to keep everything on one platform. There are so many excellent technologies and tools available, and it would be great to be able to use them all, but it is important to keep the technology interface with our portfolio companies clear and simple. 

When capturing data and financials from portfolio companies, we don’t ask for more data than we need, and we are totally clear on why we are asking for information and what we do with the information they share with us.

We have one system that all the information flows into. It is a repository for all the ESG, financial and value creation metrics. We use portfolio management software from Cobalt to facilitate that.

RD: Why has holding data in one place been such a priority?

Mills: There has been a focus across the firm on achieving real data integrity. Bear in mind that we have invested in 44 companies over an 11-year period from four funds. Making sure that we are on top of all that data, and focusing on data integrity, is the only way that we can then leverage technology. 

We could have started leveraging technology two or three years ago but we wanted to make sure that we’re not just using technology for the sake of it, but rather drawing insights from the technology. That all comes down to data quality, which has been a massive focus for us.

Data visualisation and data automation will be the next big priority areas for us, with those capabilities layering over our CRM – we use Microsoft Dynamics – and Cobalt systems to make the technology really dynamic. These programmes do have data visualisation capability but we are working towards the formation of a single lens that sits across all of the systems. 

As a dealmaker or business leader, I don’t want to have to go into four systems to source my information. I want to go to one place and see it all. So that’s why we want to spend more time on that visualisation piece and put everything in one place, making it easier to look at and easier to compare and contrast.

The end goal is to put information about our business into the fingertips of everybody in the business. That can help an investment team when they’re looking at a track record in a sector or a geography or a deal. It can help when we are going fundraising and speaking to investors. It can help when we’re just answering general queries or looking at deployment rates. 

Rather than someone having to run around and gather up figures from various sources, everyone will have access to all of the data and will be able to self-serve. That is very exciting.