The traditional Private Equity (PE) or Corporate Development due diligence process focuses heavily on legal aspects such as client and vendor contracts, regulatory filings, and stock issuances and agreements. Commercial due diligence tends to rely on customer feedback for validation of the market. Unknowingly, PE and Corporate Development offices are missing a huge source of information that can validate a company’s growth prospects: data from the target’s CRM system.
We all know that CRM systems are notorious when it comes to reporting. Reports are not easy to build, and data is not always accessible. What PE firms can obtain in the due diligence process are snippets of data and a few reports, often missing coherent history and relevant metrics. In many cases, CRM data from the data room is insufficient and needs to be massaged manually, a lengthy and cumbersome task. Thus, information on customer acquisition trends and sales performance that can be key to an accurate valuation is neglected.
A “Look Under the Hood” Isn’t Enough: CRM Data Analytics
When is the last time a buyer over-estimated the growth potential or the total addressable market of a target company? Or when the buyer under-estimated revenue growth opportunities or more importantly, revenue risks of its target company? The solution to these important commercial issues lies in a company’s CRM system which to date, has “escaped” the due diligence process due to its unwieldiness.
Besides perhaps financial data, a company’s CRM system houses the most important data of a company, i.e. all prospect information, sales process, existing client interactions with the company, customer renewals and churn, etc. Not being able to access a full set of this information puts the underwriting case at risk. To achieve a high degree of confidence in one’s investment decision-making, buyers ought to diligence thoroughly a target’s CRM data. This does not need to be as painful or time-consuming as believed.
Discern.io’s technology-enabled service helps PE firms and Corporate Development offices access CRM systems and provide analytics data that are key to underwriting assumptions, including the prospect database analysis, historical win rates, sales cycle, pipeline generation trends, customer retention, etc. The prospect database validates the size of the market for the buyer. Win rates and sales cycles by customer industry and product can help identify opportunities and risks within customer segments. Historical sales ramp can validate resource assumptions to grow revenues. Most importantly, projections of revenues in the next few quarters can help validate growth assumptions, and ultimately valuations.
Have you ever looked back at an under-performing acquisition and thought, “We should have seen this coming”? Rather than continuing to second guess past decisions, firms can now access a vital CRM data set that not only ensures better decision making but also can help identify potential high performers that may not be as good at telling their story while having a strong sales pipeline and highly satisfied customers.
We are currently seeking a handful of PE firms to participate in a pilot program and provide some feedback on their experience. Participants will receive additional analytics and insight. Interested parties can apply using this form.