Rethink, Reshuffle or Restructure
Executive Boards and Chief Information Officers generally do not know the financial value and market potential of their organisation’s data assets, especially during these unprecedented times of uncertainty. As we enter a pandemic-fuelled recession and face the challenge of massive global economic reconfiguration, business entities are being forced to rethink, reshuffle or restructure at a rate we have never seen before. Executives and boards around the globe are having to evaluate and divest their flagging businesses, and in cases of insolvency put their distressed assets up for sale.
The Golden Age of Advanced Analytics
Over the next few years, private equity firms are positioned to clean up, integrate, restructure and resell businesses. However, private equity firms, lawyers, VCs, and corporate transaction consultants generally lack the know-how and tools to manage and interrogate data in today’s Information Age, other than engaging with favoured technology businesses. And Chief Information Officers and other c-suite executives have done little to realise and promote the true value of their off-balance sheet assets, meaning there is tremendous unexplored and unrealised value hidden in their company’s data assets.
Rethinking Due Diligence
Due diligence lies at the core of all merger & acquisition operations and ensures businesses are systematically and thoroughly valued. Analysis of balance sheets and income statements provides an accepted way to evaluate a company. Private equity firms and other professional service providers have developed their own methods for examining potential sources of value to identify opportunities, threats and risks. These methods enable them to create ratings and assign premium or discount scores to businesses, before bringing them into a portfolio or walking away from them altogether.
Advanced Analytica has researched the due diligence processes engaged by corporate dealmakers and it is clear that data assets are more often than not overlooked. Although some of the approaches do evaluate candidate business IT capabilities, they typically focus on the Technology side and skip over the Information/Data. This means most private equity firms are missing the potential value of a company’s data assets.
It is generally accepted that over 80 percent of corporate value is comprised of intangible assets and most of this value is wrapped up in a business’s data. In today’s data-driven economy, the lack of corporate ability to apply state-of-the-art data valuation methods to identify value and risks in data should be considered a major flaw in merger & acquisition due diligence services.
Understanding the Value of Data and Integration Opportunities
As with all asset classes, there are a variety of ways to assess the value of any specific data asset. This includes determining its various data attributes such as its accuracy, completeness, integrity, scale, quality and timeliness. Each of these can be objectively measured but very few organisations have the capacity to do so, or adapt traditional cost, market and income based valuation models for data. Data has unique economic properties that can be reused without reducing its value, whilst at the same time used simultaneously for multiple purposes and functions.
Over the coming few years, private equity firms that can identify the potential value of data will have a unique competitive edge. By adopting advanced analytics techniques, they will become the knowledge and hub of sister companies with the ability to mix and match data from each to create unique efficiencies, opportunities and commercialise new value streams of revenue through external data products.
The inability to recognise the value of data integration and commercialisation opportunities by private equity firms will be a big disadvantage. It is similar to those who separately enjoy sea salt and caramel but had never considered how delicious and enterprising it would be to combine and commercialise them. And it is not just a company’s data that offers additional indicators of value or risk, it is also the capacity to analyse it.
If the data assets being acquired are standalone and come without the know-how to analyse them (e.g. in bankruptcy distressed asset sale), this may not initially appear to be of particular interest or value. When IT and business functions form part of an investment opportunity, then evaluating data-related culture, leadership, strategy, organisation, competency, governance, deployment, and the architecture of the opportunity. In either case each opportunity should be systematically assessed by data experts.
A Systematic Approach to Data Due Diligence
Any private equity firm could achieve a real competitive advantage in the market, potentially of several years by partnering with advanced analytics experts to develop and implement systematic and formal procedures for data due diligence. Data due diligence should be an intrinsic part of a private equity firm’s offering and also be something Chief Information Officers or Chief Data Officers perform jointly with their Chief Financial Officers to ensure they completely understand the value of their business, not only in anticipation of merger & acquisition activities. At a high level, Advanced Analytica offers data due diligence services to address but not limited to the following key considerations:
Data Profiling
- How can the data be made accessible for profiling and sharing for inspection and interrogation?
Data Valuation
- How does data contribute to business efficiencies and revenue generation?
- What is the data’s cost basis and potential market value?
Data Integrations
- How well will the buyers data management function, architecture, and culture integrate with those of the seller?
Data Opportunities
- What are innovative ways to generate value, or monetise, the company’s data assets, either on their own or when combined with those of portfolio companies or business partners?
Data Risks
- Are there any quality or consistency issues in the data?
- How well does the data environment mitigate regulatory or other compliance requirements?
Data Challenges
- What challenges will there be in integrating; or leveraging the acquired data assets; or in integrating the data management; or analytics functions of the businesses being merged?
Only with real insight into the bigger picture of a company’s data assets and data-related capabilities can a private equity firm make fully informed decisions about whether to execute deals and price them accordingly.
