Seeing Through The Fog: Common Pitfalls of Gaining Visibility Into Newco's Performance
Location:
Chicago

Emerging data platforms and technologies. The growing need for competitive analytics. Escalating data exploration needs. Increasingly complex external data. These are all key trends stemming from our increasingly data-centric world—and each has implications for merger or acquisition transactions.

How can you be sure you are incorporating the right tools, and not just the available tools, into the new organizational environment? To ensure a high-performing data environment amid the varying external market factors that can affect transactions, private equity firms need to emphasize three critical success factors within each transaction, both during diligence and after closing:

* Collaboration - Includes the people, processes, and culture necessary to gain visibility into NewCo’s performance.

* Systems IntegrationIncludes the “plumbing” that enables consistent and timely data access, especially as NewCo grows.

* ConsolidationIncludes how data is gathered, turned into information and distributed to the people who need it, including you.

Collaboration

Although many intuitively consider collaboration essential to the success of any working environment, when bringing two distinct cultures together, this tends to be the largest hurdle to overcome in M&A transactions.

Pre-close considerations: When assessing a Target that has complex data processes, be prepared to manage a culture of siloed data processes and people hoarding data or using it to inflate their political position within the organization. Complex data processes with lots of human intervention also lead to data quality issues, data trust issues, data timeliness issues, and delays in getting the data to the right people who use it to make decisions.  These complex environments are also typically plagued with processes that require extensive manual data manipulation, and in particular, a multitude of Excel spreadsheets that are passed from person to person as a mechanism of data sharing. 

Post-close considerations: Two key areas of consideration are communication and governance. On the communication front, it is important to define and agree on important metrics with NewCo leadership upfront—including very precisely defining each metric and leaving no ambiguity.  This is important in every data project, and it’s extremely important in an acquisition.  You can use these metrics and their targets as a way to drive everyone to a common goal, but this requires a very careful approach that brings people along and sets goals that they believe they can achieve. Governance is all about defining clear roles, responsibilities, and processes in order to address data requests and data issues.  You need to catalog your data assets, assign ownership to them, and manage them.  Any new data projects need to be valued, prioritized, and coordinated.

Systems integration

Integrating systems is also critical to establishing a strong data environment following a transaction. In particular, you will need to understand the amount of effort that may be involved with integrating a target company’s systems, data sources and architecture. Once a transaction has closed, growth considerations should inform the level of investment required for integrating internal or external systems.

Pre-close considerations: When assessing a target company, look for point-to-point integrations that may cause dependency issues across systems and ultimately the timeliness of data delivery.  Also, consider how critical data sources may change and grow as the business evolves.

Post-close considerations: Depending on the anticipated growth and current state of the target Company, it may make sense to implement a data integration platform to achieve efficiencies, enhance security and consistency, and enable appropriate monitoring. You may also want to establish processes for expediting resolution of data quality issues at the source system, rather than trying to accommodate data issues downstream.

Consolidation

As you consider consolidation opportunities during the diligence process, accessibility, automation, and reporting will play a role in your decision-making process. Once a transaction has closed, you should seek to identify ways to standardize the data environment and improve data management processes.

Pre-close considerations: When assessing a target company with a data warehouse or reporting platform, consider the frequency of data consolidated, the extent to which the process is automated, and whether the solution will scale with growth. Additional considerations include whether the target company leverages the data platform as a single source of truth or if it requires extensive effort to massage and augment the data. Finally, as you assess the reporting capabilities, consider adoption and the extent to which users take advantage of existing tools, and try to obtain an inventory that outlines the each tool’s version. This can help highlight any support or licensing exposure.

Post-close considerations: If no data platform, such as a data warehouse, exists, consider commissioning one. Enhanced automation will also reduce the manual processes to support the data warehouse. Standardizing a portion of the reports and reporting tools across the newly established organization can help reinforce consistent messaging. This consolidated view of data perpetuates the sentiment of one organization striving toward a common goal.

Sound footing for growth

Integrating two separate companies into a centralized data environment may seem overwhelming, but it will pay dividends as you attempt to grow NewCo. Most importantly, it will help establish a cohesive and collaborative organization that strives towards a common vision and achieves all possible synergies.

For additional insights regarding data considerations for your next M&A transaction, contact Matthew Rager at mrager@westmonroepartners.com.

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