A Data-Driven Approach to Building Better Private Equity Deals
How private equity firms can optimize data collection and analysis to identify the right targets.
The private equity market has gotten fiercely competitive. Identifying the right targets, closing deals and shepherding companies through a successful exit are only one part of the equation.
PE firms must focus on operational improvements that will help them find the right deals in a fraction of the time it takes today.
Technology-driven data and research have the potential to optimize every aspect of the deal framework and create new efficiencies for PE firms.
When it comes to technology, sponsors can often go one of two routes: build capabilities in-house or rely on disparate third-party solutions. The first approach is time-consuming and may limit interoperability. The second approach can lead firms to adopt bespoke, fragmented solutions that quickly become obsolete. And both approaches may not give PE firms access to accurate, relevant data in a timely fashion.
As private equity players seek to uncover company data and identify the right targets, they must move away from manual, fragmented processes. An artificial intelligence (AI)-driven, B2B search platform and accompanying integrations and services that optimize each stage of the deal life cycle—including identification, outreach, nurturing and due diligence—can help PE firms expand their investable universe.
Why Finding the Right Targets Is an Uphill Battle for PE Firms
Private equity investors currently grapple with several issues when it comes to finding the best deals.
First, the PE technology marketplace is saturated, but also extremely fragmented. It’s difficult to find a comprehensive solution that truly provides a holistic view of a potential target company or target industry. Most databases tend to surface the same 100 or so companies and don’t provide the differentiated information PE firms need to find companies that truly fit their investment thesis. Like most organizations, financial sponsors also deal with increased data complexity and data sprawl. Fragmented solutions often lead to a fragmented view of data, so firms tend to struggle with centralizing their data and drawing actionable insights from the wide array of information they collect. In today’s competitive environment, all of this only leads to more inefficiencies for PE firms.
Investment firms also face operational challenges when sourcing deals. Their workflows are mostly manual and inefficient. Typically, they’ll start with a Google search, cross-check company size and growth on LinkedIn and check ownership and funding information on Pitchbook and Crunchbase. Next, they’ll research company contacts as they prepare to reach out to key executives. As you can see, this sourcing process is woefully inefficient and causes PE firms to waste too much time on research.
Firms increasingly rely on data and research to find companies, but they need more optimized data collection and analysis processes. This is where advanced AI-driven technology can help firms and streamline every part of the deal life cycle—from identification all the way through due diligence.
Firms increasingly rely on data and research to find companies, but they need more optimized data collection and analysis processes.
Optimizing Deal Sourcing with Advanced Technologies
Rather than using fragmented tools and disparate databases, PE firms can take advantage of AI-driven automation to find differentiated information about companies and quickly identify the right targets.
A differentiated search engine that sits on top of a company database can help firms unearth new companies, easily find contacts and build targeted lists based on specific investment criteria, such as company size, industry, specific keywords or specific market parameters. This solution, which connects to a CRM, can also consolidate information in one place to streamline analysts’ research and support outreach and nurture activities as firms advance through the deal life cycle.
PE firms often have relied on intermediaries to reach targets, but outreach has become increasingly multichannel as both email and social media become critical to engage prospects.
In this environment, firms need to use technology with multichannel capabilities to optimize their sourcing processes. Individual mapping, people mapping and relationship mapping tools such as DotAlign, RelSci and BoardEx—and platforms that securely integrate with them—can help firms surface connections internally and externally that lead to introductions and allow them to meaningfully engage leaders at target companies. All of this can help firms close the right deals in less time. Dealmakers also need efficient ways to store and centralize data. Deal-specific CRM solutions like DealCloud and even general-purpose platforms like Salesforce are gaining traction.
Admittedly, this stage of the deal life cycle requires highly personalized, high-touch interactions that technology can’t replace. However, firms can still use specific tools to support the efforts of courting a company before it’s ready to seek investors. Many turn to email marketing software such as Mailchimp to assist in the segmentation and personalization of their nurtures.
Related content: How Technology Is Transforming PE Deal Sourcing
Today, most PE firms rely on event-based signaling to engage and follow up with prospects. However, they should also embrace signal-based nurturing. A platform with automated B2B search capabilities can help them improve this process by sending alerts based on certain triggers, such as a funding round or adding a marquee name onto their board or leadership team. By having all this information consolidated in one place and taking advantage of real-time notifications, firms won’t go several months without engaging prospects. They can make prospect nurturing a routine part of their workflow.
Today, most PE firms rely on event-based signaling to engage and follow up with prospects. However, they should also embrace signal-based nurturing.
Due Diligence Stage
Doing the proper due diligence can make or break a firm’s investment thesis about a prospective company.
Cloud-based technology platforms with AI and machine learning capabilities can be impactful during this stage of the deal framework as well. For example, a collaborative data management platform like DealRoom can accelerate the data discovery process and operate as a central repository for all due diligence data. PE firms can also use this platform to optimize their workflows, assigning specific tasks to different team members and tracking where everything is in the process to gauge whether they have all the necessary information to make an investment decision.
The Path to Better Deals
We now live in a digital world and private equity firms need to integrate digital tools into their processes to uncover the right targets and accelerate their deal flow.
Technology-driven data and research are critical to optimize the deal life cycle. Firms need these capabilities, along with companion integration and services, to transition from manual, inefficient processes to modern deal sourcing operations. At Grata, we’ve created a private company intelligence engine with all these capabilities to help firms discover comprehensive company data and unlock the middle market. We also provide an array of data, information and consulting services to help firms improve their research and sourcing processes.
No firm should have to do weeks or months of investigative work to find potential targets. The process should be seamless and they must have access to accurate, differentiated data and insights. By leveraging the right technology and services, PE firms can achieve market-wide visibility, automate prospect identification, nurturing and outreach, perform comprehensive due diligence and close the right deals even faster.