Looking back on investment year 2016-17: How Private Equity Fell in Love with Digital

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The continued fall out of the financial crisis combined with a year of political uncertainty and limited GDP growth have altered the characteristics of M&A activity.

With limited market growth fund managers are holding on to assets for longer and (possibly not through choice) are taking the time to improve their assets. Therefore, the last few years have been typified by less ‘quick flips’ and more median holding periods of around 5 years, compared to a pre-crash average of 3 years.

With millions invested, the margin for error is as small as it’s ever been – however, the competitive environment increases the need for speed in critical diligence without compromising on accuracy. To quote a recent article in Forbes, “If a private equity fund underestimates full potential, it will lose the deal in a highly competitive bidding environment. If it overestimates, the fund may win the auction, but the deal will not deliver the anticipated returns”. The increasing need for detail in the diligence process has seen the rise in importance of the quality of Commercial Due Diligence (CDD) and Operations Due Diligence (ODD) and the emergence of a new work stream: Digital Due Diligence (DDD).

So what is Digital Due Diligence?

It’s the step beyond digital monitoring that applies strategy and commercial thinking to all areas of a business.

DDD involves looking at online search and traffic data, platform analysis and social sentiment on social media. It is important for both online and offline B2C and B2B2C businesses. In the context of the Private Equity world, it feeds into Financial, Commercial and Operations Due Diligence on both the buy and sell side by revealing new verticals, audiences and opportunities and modelling and forecasting potential revenues from this expansion.

Similarly, longer holding periods call for monitoring measures to be taken after the sale of an asset. Digital post-sale consulting helps maintain a commercial eye on performance against competitors and can be used to inform a productive 100-day strategy as well as longer term planning.

The turbulent macro-economic climate coupled with limited opportunities for organic growth means that nothing can be left to chance. Evidence-based approaches relying on data and insights are the only means to uncovering and realising potential growth.

2016-17 has seen DDD used in an increasing number of transactions for on and offline assets and this year will only see that grow.
By not considering Digital in your suite of diligence tools, you are playing one card short of a full deck, this will only result in basing investment decisions on an incomplete picture.


For more information about our Digital Due Diligence capabilities please email fleur@onefourzerogroup.com