Private Equity firms function with the primary aim to invest in businesses where they can add value and maximize return on investments. But are they losing out on a fundamental indicator of successful companies – customer opinion?
With approximately 2.5 billion users worldwide, alternate data sourced online is an ever-growing and unbiased platform which provides unique insights into a company. Most companies, regardless of industry, tend to have some sort of digital footprint to market their product and engage with customers.
This leads to tremendous amounts of meta data which can be especially useful for private equity deal sourcing. Investment professionals can analyze online trends and customer opinion to gauge opportunities and translate them into business insights that help identify lucrative investments.
Here’s an example –
I. Identify the Investment Opportunity
Rockport, the shoe manufacturer, recently declared bankruptcy. As a PE firm on the lookout for new investments in middle-market companies, this news might be of interest to you, and in a situation like this, time is of the essence.
A specifically designed web crawler, that assimilates large volumes of data from multiple sources and is also intelligent enough to sort out relevant information from stacks of unstructured data, can spot this piece of news soon after it's published.
II. Benchmark Prospects Against Competitors
Social media analytics not only enables you to identify such prospects and stay ahead of the information, but also offers new ways to compare opportunities by detecting key differentials. A comparative study of Rockport and its competitors using google trends data in the US shows that all three competing firms enjoy greater interest from customers across time, and especially dominate Rockport during the Thanksgiving season. This presents an opportunity for Rockport to increase its revenue by launching creative campaigns to acquire new customers.
Once a user visits Rockport's website, the level of engagement is comparable to its competitors, but it is lacking in volume – Clarks’ visits are 2.8 times more. This suggests a need to optimize spending on marketing initiatives.
Additionally, if we evaluate traffic from different sources, Rockport performs reasonably well in terms of direct traffic and organic search results but lags when it comes to referrals and social media activity. This reinforces the need for Rockport to focus on marketing, specifically on optimizing the spend across different channels.
III. Analyze Social Media Sentiment
The lack of customer engagement is also evident on other social media platforms such as Twitter and Instagram, where Clarks and Steve Madden are more widely followed and also enjoy a highly positive customer sentiment overall. Rockport, on the other hand, is neutral at best. Even over time, its social mentions are rare and those about its brand are even fewer in number. All recent activity is more factual in nature too, regarding the takeover deal, while its competitors are more brand-centric.
Below is a word-cloud depiction for Clarks and Rockport, showing words most commonly mentioned for each. For Clarks, all words relate to its brand or product. For Rockport, most relate to the buyout.
Takeaways
As we can see, the advantages of analyzing alternate data sources are immense, and they can inform post-investment opportunities as well. On identifying key growth areas, data science offers PE firms the ability to derive actionable insights using data and consequently, generate higher return on their investments. For example, Rockport with online and retail locations can gain by harnessing synergies between online and offline customers, improving merchandising in stores and curating optimum campaigns across different marketing channels.
- Brand Building and Improved Social Media Presence – Since Rockport sells through multi-branded retail stores, establishing their own brand identify is proving difficult. Opening new stores at strategic locations can help increase brand visibility.
- Creative Campaigns – Unique customer retention initiatives, especially during the holiday season will help prevent churn and increase a customer’s lifetime value to the firm.
Are you looking for prospective investments or to improve your portfolio companies? To know more about how we can help you, visit RADiENT Analytics.
