Due diligence goes digital

According to a new report, the majority of US private equity investment and portfolio operating teams surveyed intend to create a more digital due diligence process going forward.

West Monroe’s The future of diligence in private equity report, found 70% of survey respondents intend to leverage more data throughout the process.

Additionally, 68% of respondents said they intend to use more technology and tools (vs people) to get diligence done in the future. While just over half (52%) of participants said they intend to use more in-house resources.

“PE firms need a data infrastructure and a technology stack to connect pipelines of data from target companies as well as from outside databases,” the report stated. “They will need data engineers and scientists to analyse the data. And they need the language and mindset of data analytics disseminated throughout senior leadership and deal-making teams to turn insights into action.”

These findings feed into private equity’s broader technology transformation, which The Drawdown has been tracking closely over the past few years. Our research has not only identified the industry’s tech professionals making this happen, but also the growing importance of data. 

That said, West Monroe’s report highlighted the importance of promoting data literacy throughout the organisation; increased digitalisation starts with cultivating an internal culture of data.

“Do we know what kinds of questions our data can answer? With the data we have, do we know what questions to ask? Do we have the data, the talent, and the tools to ask questions to uncover insights that competitors may not? The effort of building such a culture can also help PE firms identify their blind spots around data and technology,” said the report.

ESG diligence

Thinking about the right metrics for ESG diligence, West Monroe’s survey found diversity, equity and inclusion KPIs are the most evaluated ESG metric, cited by 89% of survey respondents.

Second most evaluated metrics were carbon footprint/standards, noted by 63% of PE teams.

This was followed equally by community relations/philanthropy, ethics and compensation/wages, all of which were identified by 60% of respondents.

Digital services firm West Monroe’s The future of diligence in private equity report surveyed 100 members of PE investment and portfolio operating teams (50/50 split) from US firms, in Q4 2021. The aim was to understand the current state of due diligence in private equity transactions, as well as attitudes about the future of diligence.