Dearth of Quality Data Spurs Difficulties in Smooth Private Equity Exits

As private equity firms face the realities of a market transformed, a surprising revelation has come to light. Quality data, or more accurately, the lack thereof, has become the thorny issue in managing successful exits, a study by EY has found.

In an industry where due diligence standards are skyrocketing after years of underwhelming exits, this need for robust, reliable data has never been more acute. In fact, 72% of industry respondents pinpointed the access to a robust set of reliable and supporting data as the most formidable challenge to an efficient exit from a financial viewpoint.

This data-related dilemma refuses to end there. Portfolio company CFOs with little experience in selling businesses, and inadequate financial controls, systems, and processes came as other key concerns.

The shifting landscape calls for more scrutinous evaluation, and more detailed evidence to answer the investors’ questions. While the concept of data readiness is not a novelty, prioritizing it has not been the norm traditionally among PE firms.

The complexity arises from the business model of PE firms where they acquire businesses, and expand them in a buy-and-build strategy. Generating a standardized set of data under such conditions can be challenging. Another hurdle is the resource allocation. Many PE firms regard data preparation as an IT project, but not a part of their value creation, which leads to a lower priority on the data preparation, resulting in inadequate talent to handle the data-related tasks.

As the industry waits for exit routes to open up, it is clear that the nature of data preparation has to be changed. The modern data juggernaut demands more than just accounting skills, requiring a shift toward controller-type roles adept at making commercial sense of the figures. For PE firms that are willing to embrace this mindset within their strategy, a seamless exit may well be within reach.