Big data experts say that new streams of data are becoming valuable ways to evaluate privately controlled businesses, many of which are family owned, at a time when demand from investors for such businesses has never been so high.
“In the private equity world alternative data is very nascent,” says Rado Lipus, founder and CEO of Neudata, which scouts new and interesting datasets. “But I can see the same early stage movement in private equity as what we saw in the asset management and hedge fund world a few years ago.” The use of alternative data sets in asset management sector has become mainstream.
Alternative data that analysts are increasingly looking at are around transactions, like sales receipts. “Millions of receipts are being collected daily on industry, firm, and product levels,” says Lipus. “Those data sets are great tools to forecast sales numbers and to understand those numbers in more graduality.”
Lipus adds: “You can also use these alternative data sources to compare the performance of firms with other businesses, for example, between a non-listed firm and a list one.”
The demand for new sources of data on private companies comes at a time when investor interest in privately held businesses has never been so high. Private equity funds have swelled to record levels and increasingly this money is competing with other sources like family offices to buy private companies.
The data doesn’t always have to tell a story, says Lipus. “Even if you don’t find anything from the data that in itself is valuable.”
Of course, employing data scientists and all the wherewithal of doing such data analysis doesn’t come cheap, and such analysis, at least at first, is likely to be done by the big private equity houses. But that will change, says Lipus. “Once one group starts doing this and gains a competitive edge then others will follow.”