How can private equity firms get the most out of alternative data? 

‍Alternative data is becoming increasingly ingrained across different stages of the private equity deal cycle. In its recent report, Neudata draws upon three case studies and outlines the types of alternative data that can give PE firms an edge during deal sourcing, due diligence and value creation.

Drawing upon evidence published by the VCI Institute and an academic paper, Neudata argues that PE funds using alternative data have outperformed those relying only on traditional sources. PE firms are increasingly turning to alternative sources such as web traffic, social media and foot traffic data, to improve visibility into markets and company trends. Using data from participating vendors, Neudata explores three specific use cases of alternative data for each stage of the PE deal cycle. 

Deal sourcing 

When it comes to identifying a target company, traditional metrics can risk overlooking early signals of brand health and customer loyalty. As such, Neudata recommends consumer reviews data to help scouting teams identify emergent, yet robust brands. 

Neudata draws upon a case study in which a vendor was asked by a PE firm to conduct a voice of customer (VoC) analysis across multiple European beauty and wellness brands. The aim was to spot the strengths and weaknesses of each brand directly from consumer feedback. From this data, the firm was able to identify a mid-sized company which outperformed its peers on experience quality. The data for this brand showed superior loyalty and operational reliability, which identified it as an attractive investment target. 

Alongside consumer reviews data, Neudata recommends web traffic, market sentiment and firmographic data for the deal sourcing progress, and provides a list of the relevant data providers for each data type. 

Due diligence 

When it comes to evaluating a target company, labour and talent data can inform workforce quality, stability and scalability, and therefore indicate a company’s true growth potential and health. 

The second case study involved a vendor assessing a large AI company’s hiring activity, ahead of potential investment from a PE firm. The vendor used its proprietary scoring system to benchmark the company’s talent quality and stability against its peers. Sable hiring trends and low attrition suggested a strong culture and reinforced investor confidence in the company. 

Alternative data types for due diligence, along with their providers, include employee sentiment data, patent filings and research collaborations, and credit/debit card transaction data. 

Value creation 

In the final stage of the PE deal cycle, Neudata recommends using alternative data to remodel a company’s commercial operations based on market demand. 

For instance, a PE firm used tech stack and firmographic data to profile existing and potential customers. By gaining insight into the technologies each company was using, the data was able to identify customers that were most likely to need the company’s product. As a result, the sales team was able to focus its efforts on high-fit accounts, and the SDR-generated pipeline grew by 50%. 

To support this stage’s shift to growth and efficiency, Neudata recommends data providers that track consumer demand and supply chain performance, and monitor ESG, reputational and regulatory risks.

For more information, contact Neudata.

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