Private equity company, make your life easier with Data & Analytics tools

Target screening seems to be regarded by private equity buyout investors as both time-consuming and a nuisance. However, the introduction of new D&A tools has made screening processes more efficient and less time-consuming, which, in turn, allows investors to allocate more time to creating value for their portfolio companies.

private equity

Who knows where the time goes?

According to a study commissioned by Tekes and FCVA (Finnish Venture Capital Association), private equity buyout investors spend a significant portion of their time selecting and developing acquisition targets. In fact, it is estimated that, on average, over 50% of the lifespan of a fund is taken up by these activities.

Furthermore, almost one quarter of a fund’s lifespan typically goes into target selection alone. Hence, it is essential that this time be used productively and that suitable targets be chosen. To achieve this, it would clearly be beneficial to make the screening process leaner and less time-consuming, as this would allow more time for developing the targets, which yields the real value for private equity players.

Private equity investors live and die according to their respective track records. It is thus vital for them to make profitable and suitable investment decisions and to be able to develop their portfolio companies so as to maximize their value. The better the target selection is at the start, the easier it will be to establish value creation practices later on.

What gives a headache to private equity investors?

According to the above-mentioned study, the issues that create the worst headaches for private equity investors are the finding of suitable investment targets, and issues related to the quality and quantity of the potential targets.

In addition, approximately two-thirds of private equity investors examine at least 30 companies per investment.

Therefore it is imperative, as a time-management tool, to make the screening process as efficient as possible, and to gather enough data on potential investment targets in order to make coherent decisions on which targets should be contacted and on how the acquisition process should be started.

How D&A tools can replace painkillers

The screening of potential investment targets can be made easier by using sophisticated D&A tools that help cut through the noise and support private equity investors in recognizing those targets with the highest potential for growth in value.

Establishing industry benchmarks is essential for any screening process, as it allows the performance of potential targets to be matched against industry best practices. But all too often, benchmarking doesn’t provide the details and context required for a truly well-informed investment decision.

Therefore KPMG has developed a unique and rapid D&A tool named “Benchmarking Plus”. The tool goes beyond the usual publicly sourced data used in screening and taps into KPMG’s robust proprietary database, along with third-party databases, thus giving the private equity investor access to beneficial information e.g. financial, operational and segment specific KPI’s gathered from our engagements.

With the help of Benchmarking Plus and KPMG, private equity players can save time and make the screening process more cost-efficient.


Jan-Patrick Haikkola has worked for the KPMG Global Strategy Group since April 2017, and has recently worked on several projects related to private equity. He has advisory experience in growth and deal strategies and M&A. In his free time, Jan-Patrick enjoys watching football (even though watching Arsenal at the moment is not the most enjoyable pastime!), and jogging.

Grasp value during the deal life cycle

High valuations and competition for good deals pushes private equity houses to emphasise  operational improvements in portfolio companies as their investment thesis.

private equity

High valuations

A prolonged period of expansionary monetary policy and historically low interest rates has produced a situation where large amounts of money are seeking returns. This has caused institutional investors, such as pension funds, to shift their focus to alternatives, like private equity. The allocation of capital to PE is thus at an all-time high, according to Forbes, and the same has been visible in Nordic fundraising as well. The money in search of good targets has led to higher valuation multiples, so that private equity houses are facing a challenge as they seek to continue to outperform other asset classes in even more demanding circumstances.

Tracing, finding and exploiting levers before and during an ownership period

The tough competition means that PE houses must, to an ever-increasing extent, be quicker to find and execute potential deals where they can unlock value. If any PE house underestimates the potential of an investment case, there will always be another that will value the opportunity more highly and acquire the asset. On the other hand, overestimating a potential deal will erode the value of the investment right from the beginning. Solving this dilemma may require co-operation with advisors, such as KPMG, that can provide support in creating a comprehensive strategy for the entire holding period of a portfolio company.

An integrated Due Diligence is a good way to quantify the opportunities in a holistic manner. Financial Due Diligence secures a reliable baseline for operations, Commercial Due Diligence describes the available market opportunities and risks, while Operational Due Diligence demonstrates the operational efficiency-enhancement opportunities, together with the implementation requirements.

KPMG’s Target Value Platform (TVP) tool quantifies operational improvement opportunities at deal speed

KPMG has developed a set of new agile tools for the more systematic identification of value creation possibilities in transactions. One of them, that could be described as an express version of a traditional Operational Due Diligence can, for instance, be delivered in a week.

The TVP is an interactive tool that identifies unleashed operational potential in a target and quantifies its value. A rapid TVP scan leverages benchmarks across several opportunity areas within cash improvement, revenue upside, cost reduction and the maturity of operations. The benchmarks are based on publically available data inputs, combined with proprietary knowledge that KPMG has collected through years of conducting engagements. The visual and adjustable deliveries facilitate discussion and can serve as a template for a 1,000-day ownership plan, including an implementation roadmap. The awareness of operational upsides should be raised, along with red flags, at an early stage of the due diligence process. With the TVP, that can be done cost-efficiently, and at deal speed.

 

Paulus Roiha has worked for 2+ years in KPMG’s Global Strategy Group. He has experience of several transactions and projects related to strategy and operations. Before enrolling to consulting, Paulus played football in the top flights of five different countries and represented Finland for 20 times. In his spare time, Paulus enjoys good food and all kinds of sports both as a participant (from skiing to padel tennis) and a spectator (from biathlon to American football).