Analyze This: Talking Data Architectures & Analytics at the Operating Partners Forum

The Overlay Team
5 min

Private Equity International’s 2022 Operating Partners Forum offered a range of insightful discussions for PE partners looking to level up. We attended quite a few exciting and illuminating sessions on how to unlock the next frontier in digital value creation. One standout session we wanted to highlight, though, was the panel discussion on how to maximize deal value and return on investment through having a modern data architecture in place.

Maximizing Deal Value & Return Via Modern Data Architectures

Reliable financial data is an indispensable tool for an operating partner. You need it to identify immediate value creation opportunities in new acquisitions, and to negotiate the best possible deal at exit. Modern digital tools offer game-changing capabilities - but they rely on savvy implementation and buy-in from team members. This breakout session helped our team and event goers discover best practices for improving how sponsors handle portfolio company data.

The three panelists came in with extensive experience in building portfolio companies into high-value assets. First up was Tye Howell, the Managing Director of Data and Digital at Blue Point Capital Partners. Next was Gus Spanos, the Co-Founder and Managing Director of SBJ Capital. The third panelist was Menno Veeneklaas, a General Operating Partner at the turnaround investment firm Allegro Funds.

Good Data Requires Good Relationships

The participants all identified early integration as one of the most challenging stages for getting an organization’s analytical house in order. Often, that difficulty comes from the people rather than the company’s technical capabilities.

Many private equity acquisitions are family-owned businesses whose executives aren’t used to dealing with hands-on partners. Some head-butting is almost inevitable at first. According to the speakers, the best way to overcome this early tension is to provide immediate, visible, short-term value. Restructuring is easier for executives to swallow if you start by demonstrating fast, tangible benefits.

That means you need to know your firm’s capabilities and be ready to bring them to bear right away. If there are crucial benefits that you can’t deliver internally, make sure you have trusted vendors and partners who can fill the gap.

Move Fast, But Start Simple

The panelists emphasized how new acquisitions can nearly always benefit from a substantial overhaul in their approach to the numbers. “Almost all of our acquisitions are immature from a data perspective,” as one panelist put it. 

Turning this around quickly is an important part of an operating partner’s job. Your portfolio companies need an organized approach to collecting and analyzing data - and they need it fast. At the same time, it’s important not to overload teams by rolling out too many new tools and metrics all at once.

The first action item is creating a list of core KPIs that will serve as the foundation for everything else you do. Keep these vital metrics in sight as you proceed. 

Don’t go overboard, though. It can be tempting to set up dashboards and pre-defined metrics for every conceivable measurement. That can backfire, dazzling people with complexity rather than helping them grow. It’s hard for team members to know which insights are important when they’re trying to keep track of thirty different brand-new data tools.

This is where having a Metric Layer within your organization can help.

What Skills Are Missing?

Another important task is to get a handle on the organization’s existing talent. Identify the skill sets that you need for the value creation projects you plan to implement. Do any current employees have those capabilities? Having or bringing on a financial analyst is one resource to consider as you begin.

Another commonly employed resource is a data analyst or data team. Let’s say you want the company to use Power BI to generate and share data insights. Do you have employees with the necessary SQL chops? Or do you need to hire outside talent?

The bottom line here is not to assume anything about what kinds of expertise and knowledge you’ll find in a new acquisition. 

“I once asked one of my portcos to define gross margin,” one panelist remarked, “and they looked back at me with a blank stare.”

Preparing For Exit: 3 Must-Haves

Solid data strategies are at least as important for high-value exits as they are for acquisition and integration. The speakers identified three crucial goals that will ensure higher deal values when you’re exiting:

  • Connected systems. Buyers and investors want to see a company that functions as a unified whole. All of the systems you’re using to track finances and performances should work together. And the organization should have a coherent, consistent framework for generating reports.
  • Unified KPIs. In the same vein, it’s important to make sure that the company’s core metrics fit together in a logical way and that your metric definitions evolve as the business does. Everyone should be working together toward the same goals.
  • Modern data architecture. Make sure that the organization is taking advantage of modern tools for managing data. A flexible analytics ecosystem that can adapt, grow, and learn in real time will make any portfolio company more valuable.

Strive For Better Data At Every Stage

If there’s one takeaway from this panel, it’s that prioritizing good data can improve value throughout the life cycle of a portfolio company. Be prepared to approach any new acquisition with a comprehensive strategy for implementing powerful, cohesive, and actionable analytics.

The Overlay Team

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