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Beyond diligence: How transactional data is irreplaceable

Apr 27, 2021
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Private equity

In today's data-rich world, buyers and sellers can capture more value with in-depth assessments

Conducting financial due diligence is standard practice in today’s deal market. The typical scope of due diligence entails an in-depth review of financial statements and related components. While this approach is useful in providing a clear picture of summary-level historical performance, it will often fall short of painting the entire picture.

Failing to uncover significant operating and financial performance drivers can put a deal and investors at risk. This simply is unacceptable in today’s data-rich world. With all the data that is being collected, buyers and sellers alike are now able to drill down deeper on key business drivers. Some savvy dealmakers are opting to expand their diligence scope by performing an in-depth assessment of customers, product revenue, and corresponding profitability, in tandem with their standard due diligence.

How to make transactional data work for you

Data can be transformed into information that allows users to gain a deeper understanding of both the internal and external factors driving company performance. Whether you are a buyer looking to expose significant risks or untouched profitability opportunities in a potential acquisition, or a seller trying to correctly position a company for sale, a profitability assessment can provide insights into trends that could unlock real value. 

Using data analytics, buyers and sellers alike can delve into the data in order to answer questions in ways they have never been able to before, like:

  • What customers are we at risk of losing?
  • What is the real customer retention rate? 
  • Why are certain geographic markets underperforming?
  • What is our current ZIP code footprint?
  • What products and services are creating the most and least margin?
  • Are products priced correctly?  
  • Which end markets are we failing to penetrate?
  • Does our product portfolio contain the right mix? 

Being able to answer these types of questions allows buyers to make informed decisions about where the business is headed and why.

Additionally, while no one likes to see a deal re-traded, it’s important that buyers negotiate deal terms with as much undisputable information as possible. The use of data analytics can often uncover negative trends in a business which provides the buyer with leverage to negotiate a fairer price.  Negotiating from either side of the table in today’s deal market without this deeper level of information can be dangerous. You can run the risk of never realizing the value that is sitting just below the surface-level details of your data.

RSM contributors

  • Mark Cox
    Director
  • Patrick Harsnett
    Director

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