Following the technology market rout during the spring, the growth-oriented private markets licked their wounds and picked their spots. One of the leading subsectors deemed poised for expansion, regardless of an economic slowdown? Data analytics.
“Companies across the board are compelled to find a competitive edge to drive growth and profitability, especially in challenging times,” says Nikhil Bhat, a managing director at Vestar Capital and who helps lead the private equity firm’s business and technology services investments.
“Harnessing big data is a source of competitive advantage,” he says.
From asset management to supply chain logistics, there is a major push by companies to deploy cutting edge analytics. In little more than the past decade, the data science space has transcended the pages of “Moneyball” and moved into a realm marked by big strategic investments.
Research firm Fortune Business Insights predicts the “big data analytics” market will grow globally by 13 percent per year for the next six years, to become a $500 billion industry by 2028.
One of Vestar’s more noteworthy data-driven deals involved carving Institutional Shareholder Services (ISS)Inc. out of MSCI Inc. That was back in 2014. Vestar at the time backed management to grow ISS further out of its proxy-advisory-focused roots into a comprehensive corporate governance and ESG data analytics provider. Fast-forward to 2017 – ISS underwent a management buyout led by Genstar Capital – and capabilities expanded further still. And then, last year, ISS hit a homerun: Deutsche Borse, pivoting from trading-related fees to delivery of real-time investor data, acquired it from Genstar for $2.2 billion. That’s nearly seven times the price ISS reportedly fetched eight years prior.
“People like to talk about machine learning and A.I. and these are useful tools,” Bhat explained. “But what matters most in this space is using a deep understanding of the customer to provide them with the insights they need to make better business decisions.”
Becoming a data-driven company is a heavy lift and natural impediments could thwart best-case scenarios for growth in demand for such services if only due to unpreparedness. Some 80 percent of major corporations surveyed by IBM say having a more robust data-architecture is currently a top priority, and also a challenge.
“Data analytics has invigorated legacy business models and upended traditional corporate cultures,” says Shaun Dookhoo, associate director at Shoreline, a global advisory firm which specializes in helping asset owners use data. Organizations that have harnessed data analytics have benefited immensely at the expense of their competitors, while laggards often struggle to establish the necessary culture required for leveraging data, according to Dookhoo.
A recent deal that underscores the breadth of the scope of the data science opportunity: Omers Growth Equity, a part of Toronto-based Omers pension system, in May of 2022 helped seed Imply Data Inc., valued at $1.1 billion. Imply develops real-time analytics databases. Its founders are the same developers who created Apache Druid, go-to software for open-source projects that transform vast datasets into actionable intelligence.
The deal was led by Thoma Bravo which not surprisingly has its fingerprints all over the big data space. In June 2016, the technology-focused private equity powerhouse firm took Qlik private in a $3 billion deal. Qlik does data visualization, the end result all this software wizardry. It’s the output, as opposed to the input, all of it part of a sprawling continuum of data harnessing activities.
Silicon Valley-based Talend is an example of a leading player focused on pulling in and making sense of humongous, disparate flows of data coming like spray from a fire hose connected with myriad sources. Thoma Bravo took Talend private in a deal that closed last September. Final price tag: $2.4 billion.
“We’re focused, post tech-crash, on sub-sectors of tech that we deem to be resilient and transformative,” says Chip Virnig, partner at Thoma Bravo.
Cybersecurity is arguably one such area, he points out. And data analytics is another.
“Data analytics is a vast space with a lot of niches and complex components to it,” he says.
In addition to the input and output segments along the continuum there is a middle-phase segment. It’s led by companies such as publicly traded Snowflake (storage) and Alteryx (blending and integrating data streams).
Companies are viewed by some in the industry as having no alternative but to push further into data science and related tools. The beleaguered, at times broken down, global supply chain is vividly illustrating the importance of having real-time insights. Companies need to know which suppliers are most reliable, which redundancy/contingency options are viable, where delays are happening, how raw materials can be obtained more cost effectively, and so on.
“The exciting thing about this market is with AI and ML (machine learning) we can now take live data feeds and deliver real time actions via automation,” Virnig says. “It adds a whole new element in terms of return on investment.”
One of the more impressive success stories to come out of the big data sector ties to the early months of the pandemic when Vyaire, a maker of ventilators, used Talend’s data platform to ramp up production from six machines to 600. Rigorous analysis using every data point on the assembly line was distilled into a re-tool blueprint that identified a series of ultimately fixable chokepoints within the quality control process.
Applying Big Data strategy to analytics asset management can produce an enormous informational edge to this subsector. It’ll continue to grow in line with the baseline amount of assets – tens of trillions of dollars, worldwide – to be managed, said Joe Donohue, vice chairman of DC Advisory, an M&A/private capital advisor serving growth companies in North America.
“Companies like Bloomberg, FactSet, Reuters and S&P Global are in a race to capture market share,” Donohue said, pointing to what could be a forthcoming cycle of new strategic bolt-on acquisitions as priorities shift to areas of growth, such as, say, ESG.
In the case of Deutsche Borse, their push into ESG factor data was the driving force behind its purchase of ISS.
Vestar has done several deals that illustrate the data analytics groundswell.
Back in 2018, Vestar led an investment in Information Resources Inc. (IRI), which at the time was owned by New Mountain Capital who retained a significant stake in the company. Not to be confused with ISS, IRI is a leading global provider of big data and predictive analytics to the consumer packaged goods sector, integrating otherwise disconnected consumer data streams (purchase habits, media consumption, as well as social, causal and customer loyalty data) to help corporate customers grow their businesses. This past April, IRI announced plans to merge with NPD Group, a global consumer data provider to the general merchandise and foodservice sectors, bringing together complementary, leading data assets on an advanced technology platform. Hellman & Friedman, which owns NPD, will acquire a majority stake, while Vestar and New Mountain will retain significant minority stakes in the combined company.
Previously, Vestar’s Healthcare team, in 2017, led an investment into a founder-owned company called Quest Analytics, a leader in health plan provider network management analytics software. This deal exemplified the trend towards investing in vertically focused software and data analytics companies. Quest has since made, with Vestar’s backing, two strategic acquisitions to expand its data sources and analytics capabilities.
“Health plan networks are characterized by massive amounts of complex, dynamic data on healthcare providers,” Bhat said.
By investing heavily behind its technology and analytics capabilities, Quest created a platform that enables health plans to build high-quality networks.
“That drives positive health outcomes for members,” he said. “Something everyone in the industry wants to achieve.”