The power of data analytics in private equity

5 ways to leverage midmarket portfolio company data

Jun 06, 2022

Key takeaways

Having the right data is crucial for accurately forecasting future cash positions in times of uncertainty.

Working with sales and operations to apply data insights effectively is key to improving portfolio company profitability.

Realizing the value of any M&A deal requires understanding how to integrate an acquisition into the portfolio company.

Digital transformation Private equity Data analytics

Turning data insights into actionable results to drive value creation

If there’s one lesson that came from having to navigate private market uncertainty in recent years, it’s that big data is a PE-backed chief financial officer’s best friend.

Thanks to the power of data analytics, CFOs of midmarket portfolio companies have progressed from being financial stewards of their organizations to serving as business strategists for the PE firm. Their ability to apply data insights effectively can be key to unlocking the mystery of value creation, from improving portfolio company profitability to successfully integrating acquisitions.

Portfolio company data can be used to help the CFO do the following:

1.    Manage liquidity in times of uncertainty

Maintaining confidence in meeting cash flow obligations has highlighted the importance of liquidity risk management and stress testing.

Having the right data is crucial for refining the key business assumptions that could have a major impact on a company’s ability to project cash flow through downturns and understand sources and uses of cash.

CFOs and operating partners must exercise their talents in cash projection modelling, examining the assumptions that were built into P&Ls from top to bottom, and rolling that forward to understand how market head winds can affect overall liquidity.

There is a growing expectation for CFOs to step beyond accounting and drive business insights that could be pushed back to functional teams to partner with the business more closely.

2.    Drive top-line growth

While the CFO has always served as a PE firm’s liaison to IT, the role has grown in prominence to become the connection point between the portfolio company’s underlying technology and overall business performance.

Armed with analytics and insights, today’s CFO has the power to unleash operational synergies and drive top-line growth. Critical to making it all work is collaborating with sales and operations.

For example, the CFO now provides invaluable assistance to the chief revenue officer by helping uncover profitability insights around customer relationships. One way to do this is by leveraging margin analytics to help the operations team understand opportunities to improve the customer experience while reducing service costs.

3.    Build a strong investment thesis

The private equity deal market continues to fluctuate but one aspect of M&A remains constant: Realizing the value of any deal requires understanding how to integrate an acquisition into the portfolio company. Success hinges on continuing to service customers while capturing the benefits of the merger.


Only by understanding the data and systems coming with a transaction can an executive team best position the business to drive the investment thesis forward and determine how to enhance value creation. This sort of data-driven decision making is the backbone of a solid integration strategy.

The CFO’s role has grown in prominence to become the connection point between the portfolio company’s underlying technology and overall business performance.
Rich Davis, Principal, Management Consulting

4.    Create a compelling vision for initiatives

Even the best quality data is useless without the skills to analyze it. CFOs need to understand how to interpret key insights and identify which initiatives will help drive additional value. That’s how you create a vision for others to follow.

Establishing a critical view at a management-team level can drive specific and targeted organizational initiatives that have an impact on sales, customer acquisition, and churn, all the way through to the P&L. Portfolio companies are looking for systems that can help tell a story. A good team that understands sales and operations, armed with the right data from the right systems, will be the most successful.

5.    Maximize software solutions

What is often the case with portfolio companies—unless there has been tremendous under-investment in technology—is their software solutions usually are being under-leveraged. This is especially true for enterprise resource planning and customer relationship management systems.

Never assume these vital data repositories require transformation to perform better; instead, it may be as simple as looking at the available data and modelling performance over time to help understand how the platform can be better employed. If the right ERP or CRM is already in place but there is a lack of understanding in how best to leverage the system, it might be worthwhile to bring in a technology advisor to consider how the system can work better to drive performance.

Lastly, assuming a portfolio company could capture all operational and financial data, should everything be measured? Here’s where industry perspective becomes critical because for every business there are a handful of key performance indicators that matter most. CFOs may want to consider different perspectives from industry peers to aid with benchmarking and to bring value creation strategies into sharper focus.

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