When you choose a backer, it’s important to ask yourself: which will most help the company in reaching the full potential over the coming years?
What are the challenges of developing tech in a price-constrained environment?
Developing proprietary data and analytics is an important part of many companies’ growth strategies. Whether achieved organically, acquisitively or a mixture of both, you can end up in a complex and compartmentalised database environment containing dozens of small pools of data. These pools contain products that have been built up over time, and there may be complicated relationships between the products and the data. This legacy, or “technical debt”, creates a challenge which requires attention.
Wood Mackenzie grew both organically and acquisitively and so ended up with tens and tens of data pools; ultimately over 70 products were drawing on different parts of the data. It became an exercise of untangling the pools and creating one unified data lake.
How is this ‘untangling’ of data best undertaken?
You end up coping until the dreaded word unsustainable gets used, and then it needs to be addressed.
We were under the stewardship of four different private equity backers, and this brings a lot of opportunity but also some challenges, particularly as regards integrating the data. If you’re within private equity and coming up to a sale, you need to communicate the challenge of data pools to your existing and prospective owners. But how do you do this? You can easily end up kicking the can down the road so it needs be done in a balanced way.
If it’s a new data analytics company, then the handling of data structures and the cloud is all readily available. But if a business is around 20 years old, you can have physical servers in and most likely more of a legacy to deal with.
Every private equity deal we did came with a burst of energy at the outset as a fresh value creation plan was put into place. If the business has momentum – as we did – then the private equity firm can move into the waiting room to prepare for exit – and that’s not the time to consider the tech challenges. No runner can sprint all the time, so after four laps round the block, we needed a new strategy.
It becomes about the communication and alignment with the private equity firm to get the investment which is necessary to sort out legacy issues and take the business forward. That being said after working successfully with 4 different private equity firms (including HBOS) – all of whom helped take the business forward – ultimately we wanted a permanent home which we found with Verisk Analytics.
How do you go about choosing backers for the business?
2005 was our first sale process and we engaged with private equity and corporates; we did this again in 2009 and 2012. Each time we ran a process and met lots of players in an effort to end up with the right outcome.
All along you’re not sure who will show up nor whom you will have an affinity with. The bottom line is that in terms of choosing you really need a great adviser. The corporate finance advisers should bring the contextual knowledge of what life will be like after you cross the line. All of them can woo you, but what’s important is the consistency of approach as well as the intuitive feel of whom you can work with.
How can private equity firms add value?
One backer saw our legacy CRM system was inadequate and so helped us to add SalesForce. It helped us understand our clients and drive that. They can also be very helpful with key acquisitions. There was one in particular I recall: I thought it wouldn’t work and that we’d need to withdraw from the process, but the private equity firm was incredibly supportive and so encouraged us to pursue it. Ultimately it helped us to develop another vertical.
For this and other reasons, the level of communication from a CEO’s perspective with its backer should be high and consistent – it’s crucial for alignment and it makes Board meetings more constructive. If that communication level drops too low, there is scope for unhelpful surprises.