When making decisions related to prospective acquisitions and/or active investments, private equity firms need objective, detailed information about each brand under consideration. In this article, we sit down with Intalytics experts Charles Collier and Justin Tischler to discuss recent trends in this sector, and explore how Intalytics helps advise leading private equity firms on their investments.
What changes have you seen in private equity firm activity and engagements over the last few years?
Charles Collier: Over the last three to five years, private equity firms have become more specialized in what they invest in. They are increasingly asking questions like “how can we help this retailer refine its network to be more competitive?”, or “how can we help this restaurant adapt their menu to better suit the needs of their customers?”. The whole process is about maximizing their value-add, so testing those questions during the diligence process is critical for figuring out whether there is a good fit. Further, what used to be a 10-year hold on an investment is now a much shorter 3 or 5-year hold. It’s a much faster sell. It’s exciting to partner with our PE clients to determine how to generate value in a shorter timeframe.
Justin Tischler: One thing that has changed significantly with respect to our work is how we answer key questions about a target brand for our PE clients. With third-party mobility data at our disposal, we can see who is visiting their locations and their competitors. Our use of this data has led to development of more robust customer profiles and predictive models, all while relying on the same limited set of information typically available in a data room. This development has unlocked the ability to inform with more certainty a lot of the key business questions that we are increasingly being asked to advise on.
How does Intalytics work with private equity firms today?
JT: With private equity clients, we are typically engaged to provide buy-side diligence. That said, we also work with and support many active holdings post-acquisition. The main objective of our buy-side diligence studies is to help our PE clients understand the runway for a target brand given certain financial constraints like minimum per-unit profitability. We employ a very granular approach in this work – we start by understanding the brand’s customers and competitors, build predictive models that explain neighborhood-level and location-level performance, and then apply these models to geographies of interest to identify potential trade areas and prioritize expansion markets.
CC: Our private equity clients come to us to provide data-backed answers to help them understand a potential investment. The granular analyses Justin mentions are all conducted with an extremely quick turnaround. I like to think about it in terms of the questions we answer in a typical scope:
- How many profitable units can I build within a defined study geography (e.g., the U.S., North America, etc.)?
- Where are the greenfield expansion opportunities?
- How is the runway for a potential acquisition impacted by engaging in a roll-up strategy vs. de novo development?
- Who are the most impactful competitors to a brand’s business?
- What is the demographic and psychographic profile of the brand’s core customers?
How do our PE-focused solutions differentiate relative to other firms that might be engaged for diligence work?
JT: Methodology and experience matter. The same estimation techniques that we use on behalf of our clients underpins the models that we develop in our diligence work. Our team’s experience working with and supporting leading brands in the retail, restaurant, healthcare, banking, and services sectors provides our PE clients with a more informed solution. While buy-side diligence work is inherently transactional, our relationships with the brands themselves (some of which are measured in decades) provide us with a more expansive time series against which our analytics and results are evaluated. The longevity of our client relationships speaks to the efficacy of the solutions that we provide.
CC: From a deliverable standpoint, another differentiator for Intalytics is that the analyses we present are fully transparent. The facts are the facts, and we know the details are absolutely critical to drive a decision as to whether or not to invest. We are focused on making the job of the sponsor easier throughout this process, and to assist in presenting a detailed yet concise package on “what makes a brand successful” to the investment committee. We are big believers in communication. PE engagements occur within a compressed timeframe (2-3 weeks), and quite often result in us working to answer business questions that we didn’t know would be relevant at the outset. We are happy to be a trusted advisor to our clients in this process, and I think this is one of the primary reasons that leading PE firms continue to engage us.
Finally, what can you say about the state of private equity deal making in 2021?
CC: What’s always fascinated me is the resilience of private equity. 2020 was an outlier in many ways, and hopefully we will never see a year like it again. Yet, the number of PE transactions was very similar to the count in 2019, an incredibly active year. And from the activity we’ve seen so far this year, the space is very healthy and active. With the change in leadership in Washington, there are potential tax implications on the horizon that could drive more PE deals to get done by the end of 2021.
Contact us to learn more about our analytical process, our history with private equity clients, and how we can help you evaluate investment opportunities.