PE Deal Failures Highlight Importance of Private Data, Says JMAN Group

The critical importance of data to the private equity and alternatives markets sector is starkly underlined by an observation from Anush Newman, chief executive and co-founder of JMAN Group.

“In the past 18 months, I know of at least 20 acquisition deals that have fallen through because the target companies didn’t have enough data to support their claims of their performance,” Newman tells Data Management Insight.

“If there’s no data to prove what you say you’ve done, then that deal isn’t going to happen. If anything, 20 is an undershoot.”

If they don’t get the death penalty they want, they won’t sign on the dotted line of a buy-out or investment.

“GPs are increasingly data hungry because the market has got tougher and growth has been tougher for some, so they want to know which of the investments that they have stitched together is doing well – and that requires data,” Newman says.

JMAN Group helps portfolio companies gather and package the information that GPs are increasingly demanding. Its team of advisers, data scientists and engineers also help firms and GPs integrate that data into their own systems to create value for companies and empower fund decision-making.

Formed in 2010, and with offices in New York, London and Chennai, India, the company has grown in tandem with the importance of private and alternative markets to global institutional investors, who typically put about a third of their capital into such structures.

As competition within the sector has intensified, so has the demand for data to give GPs and their co-investors an edge when it comes to building and managing their portfolios. The challenge for them, however, is prising that data from their portfolio companies and ingesting it into their own systems.

Newman says that there is a huge amount of data locked within companies but it’s not always easy to get hold of it. Consequently, the levels of data granularity GPs and investors can achieve is not the same as that available from public companies, which are under more regulatory pressure to disclose such information.

Nevertheless, the rising understanding of the importance of corporate data to investment decision-making is changing the picture, says Newman.

“The gap is getting narrower all the time,” he says. “It’s now becoming table stakes to have control of your data, when a few years ago you could get away with it being a little bit looser.”

Within public capital markets, data utilisation and management has become a value-adding proposition. The “reusability” of data that is ostensibly collected for specific use cases like regulatory reporting and risk management is being used more widely within institutions, particularly for cross-selling and other customer-focussed operations.

That message has also got through to the smaller companies that comprise the majority of PE funds’ portfolio constituents. They are also realising that the data they use in the running of their business is also useful for investors that back the companies.

“If I had access and visibility to lots of data and insights from which I could make better decisions and run my business better, that is actually what I can give in a report to the board,” he says.

Newman estimates that the proportion of company-reported data that helps GPs and investors make critical decisions and generate alpha is about 20%. The rest is what he calls “commoditised data” that is essential but won’t make a huge difference in deal making or returns generation.

“Proprietary data is the ‘exit data’ on which a deal will stand or fall,” he says.

There are other obstacles to mining that information. A shortage of data talent, especially expertise conversant with modern data management systems and AI, makes data gathering and ingestion difficult, especially for smaller firms and funds.

“You need lots of different disciplines to have a good team,” says Newman. “A lot of companies want to build this in-house, but where they find the talent, having them trained, how they stitch the teams together with all the right disciplines… are quite hard.”

Just as difficult a nut to crack is cultural change within portfolio companies. Different parts of a business may not be used to parting with their proprietary information and may resist handing all of it to GPs and investors. Things are changing, however, says Newman, as business leaders become more aware of the value in sharing data.

“Of course, you want to be very transparent with [investors], but you don’t just give access to all your data in scope; you don’t know what they will come back with!” he says.

“But there is a trend among management teams and portfolio management teams; the CEOs of CFOs are beginning to take control of their data so they can be open and transparent with investors – to tell them the story they want to tell and back it with evidence.”