With Deals Closing Faster Than Ever, Private Equity Firms Waste Precious Data

The speed at which managers vet companies began to increase in the summer of 2020 and it hasn’t slowed down since.

Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Private equity firms have more timely and valuable information about potential deals — due diligence data — at their fingertips than ever before, but speedy deal processes and high transaction volumes have them still sticking with inefficient Excel spreadsheets.

A survey of 100 private equity professionals by West Monroe Partners, a digital consulting firm for investors, showed that while these firms have invested in more sophisticated technology, they’re not taking full advantage of valuable data that could inform transactions.

“They’re really busy,” said Brad Haller, a partner in West Monroe’s M&A practice. “The advisers are working on six different deals at once.”

According to Haller, the speed of the due diligence process began to increase in the summer of 2020, once the reality of the pandemic set in. Flush with dry powder, managers took to Zoom to evaluate portfolio companies. They haven’t left the platform since.

“The majority of processes are still being conducted via Zoom,” Haller said. “Because of that, access is being much more constrained. Deal timelines are being cut in half.”


Sixty-eight percent of survey respondents said they expect to use more technology and tools in the vetting process over the next one to three years. Meanwhile, 80 percent said they would use more data-driven or data science-driven approaches to doing research on companies.

“Valuations are super high and it’s very competitive,” Haller said. “Every day there’s a new private equity firm it feels like.”

He noted that West Monroe’s clients used to have between 30 to 45 days of exclusivity, in which sellers were not allowed to engage other buyers on deals. Now, these periods are closer to two weeks.

Some allocators have raised concerns about the speed of the private equity due diligence process. One, who spoke on condition of anonymity, said they saw a firm deploy billions of dollars over the course of 30 days — with just a ten-person team.

“Just wake up people,” the allocator said. “Do you really think they’re doing the diligence?”

Another asset owner noted that this is a strategy some managers use to keep fees low and the number of deals high. “The GPs are saying, ‘We have looked at the history of deals and we’re playing the probability more to raise the likelihood of success,’” they said. “Maybe you don’t need the six times multiples if you can do it at lower fees and greater scale.”

While private equity teams prize efficiency, they’re not solely focused on speed. Just one percent of survey respondents said they value the ability to execute quickly more than other characteristics like the alignment of recommendations — making sure deals fit with a fund’s objective — and industry experience, both of which were most popular.

According to the report, many more private equity firms are using assessments, which contain standard information, commissioned by sellers, including other investment firms or the portfolio companies themselves, to make the due diligence process more efficient.

The survey showed that 66 percent of respondents said they would be more likely to buy a company that completed sell-side diligence in the next one to three years. Meanwhile nearly half of respondents — 47 percent — said they would complete “less rigorous” due diligence on targets that have already completed sell-side diligence.

“They’re taking the target’s data and populating an existing template versus using more advanced data science,” Haller explained.

But using that data science could be to managers’ advantage.

“It’s less about trying to set yourself apart in the process and more about using analytics, key learning, digital capabilities to justify a higher valuation,” Haller said. “Why does your private equity firm think the same assets are valued at an extra multiple than what my team came up with? What do they know that we don’t?”

One way that private equity firms can justify valuations, Haller said, is to use the data gleaned from the due diligence process to implement changes at a portfolio company. For instance, a firm could use transactional data from a retailer to find anomalies in consumer behavior that could provide opportunities to upsell or improve pricing, which in turn could drive up earnings.