Why Private Equity Portfolios Are Investing in Data to Drive Growth: Lessons for COOs and CIOs Supporting Exit Criteria

Private equity (PE) firms have long used financial restructuring, operational efficiencies, and cost-cutting as core strategies to enhance the value of their portfolio companies. However, data has become a critical tool for driving growth and achieving higher exit valuations in recent years. As digital transformation continues to reshape industries, PE firms increasingly invest in data platforms, intelligence automation and advanced analytic capabilities within their portfolio businesses, unlocking new opportunities for growth, cost efficiency, synergies between Portfolio of companies and competitive advantage.

This shift towards data-driven strategies requires a fresh approach to operational and digital frameworks for Chief Operating Officers (COOs) and Chief Information Officers (CIOs). They must ensure that data is integrated into the business and align it with the exit criteria set by investors, preparing their companies for successful exits. Here’s why data has become essential to PE firms’ growth strategies and what COOs and CIOs can do to leverage it for exit success.

The Role of Data in Private Equity’s Growth Agenda

1. Unlocking Revenue Growth

Data provides deeper insights into customer behaviour, market trends, and operational inefficiencies, allowing businesses to make informed decisions directly impacting revenue. By leveraging advanced analytics, portfolio companies can optimise pricing strategies, improve customer segmentation, and increase marketing and sales effectiveness. These data-driven improvements can significantly enhance top-line growth, key to boosting valuations before a sale.

2. Driving Operational Efficiency

Data analytics allow businesses to identify and eliminate inefficiencies across their supply chains, production processes, and internal operations. Predictive analytics can improve forecasting, reduce waste, and optimise resource allocation. By using data to streamline processes, businesses enhance operational efficiency and increase margins—a crucial factor in achieving higher exit multiples.

3. Enhancing Decision-Making and Agility

Companies that can rapidly adapt to changing customer preferences, competitive pressures, and regulatory requirements are more likely to succeed in today's fast-paced market. Data-driven decision-making provides businesses the agility to stay competitive, respond quickly to market shifts, and make informed strategic decisions. This adaptability enhances a company’s attractiveness to potential acquirers who value future-proof, agile organisations.

4. Digital Capabilities Command Premium Valuations

Companies with strong digital capabilities, including advanced data infrastructure, often command higher valuations. In sectors such as technology and financial services, buyers are willing to pay a premium for businesses that can use data to drive ongoing growth. By investing in data and digital transformation during the holding period, PE firms can significantly enhance their portfolio companies’ exit valuations.

Strategic Insights for COOs and CIOs: Maximising Value in PE Exit Planning

1. Embedding Data Across Business Functions

Data must be integrated into every aspect of the business to maximise its impact. COOs and CIOs should focus on embedding data-driven decision-making across all functions, from sales and marketing to finance and operations. This requires building a company culture that values data insights and investing in the right technologies to support this shift.

CIOs, in particular, must ensure that the data infrastructure is scalable, robust, and future-proof. This involves selecting cloud platforms, machine learning tools, and analytics systems that can evolve as the company grows. The goal is to ensure data becomes a core asset, driving value creation across the organisation.

2. Prioritising Data Governance and Quality

The effectiveness of any data strategy depends on the quality and governance of the data being used. Inaccurate or poorly managed data can lead to misguided decisions and undermine the company’s strategy. COOs and CIOs must establish clear data governance frameworks that ensure data quality, consistency, and security. This is especially important in regulated sectors such as financial services, where data compliance is critical.

Strong data governance also improves a company’s appeal during due diligence. Buyers need assurance that the data-driving decision-making is reliable and compliant with regulatory standards, particularly when evaluating the business's long-term scalability.

3. Monetising Data as a Strategic Asset

Beyond operational improvements, data can be monetised as a standalone asset, creating additional revenue streams. This could involve developing new data products, offering data-driven services, or entering strategic partnerships to leverage proprietary data. COOs and CIOs should explore ways to turn data into a value driver, adding additional growth potential to enhance the company’s valuation.

Early planning is essential to maximise these opportunities ahead of an exit. Businesses that position their data as a monetisable asset are more likely to capture the attention of potential buyers, particularly those looking for innovative, growth-driven opportunities.

4. Digitalisation and Automation to Reduce Costs

A crucial component of any data-driven strategy is using digitalisation and automation to reduce the overall cost of ownership and improve cost-to-serve. By automating repetitive tasks and digitising core processes, businesses can significantly reduce operational overheads, improve service delivery speed, and enhance accuracy.

COOs and CIOs should consider and, where possible, automate labour-intensive processes like customer onboarding, invoicing, and supply chain management. These efficiencies reduce costs and enhance scalability, positioning the company as an efficient, lean operation—a critical factor in attracting buyers focused on long-term profitability.

5. Preparing for Due Diligence with a Focus on Data

Preparing for the buyer's due diligence process is one of the most critical aspects of a successful exit. Buyers will scrutinise the company’s data capabilities to ensure they are scalable, secure, and aligned with future growth plans. COOs and CIOs must ensure that the data infrastructure is well-documented, scalable, and capable of supporting continued growth post-exit.

Addressing data-related risks, such as cybersecurity vulnerabilities or compliance issues, well before the exit process begins is essential. Potential buyers will prioritise businesses with robust, secure data systems that provide confidence in the company’s ability to grow without exposing them to undue risk.

6. Aligning Data Strategies with Exit Metrics

To support a successful exit, COOs and CIOs must ensure that their data strategies align with the key performance indicators (KPIs) that potential buyers value. For example, if the exit thesis is focused on revenue growth, the data strategy should prioritise optimising customer acquisition and retention. If the focus is on margin expansion, data should be used to drive operational efficiencies and reduce costs.

Close collaboration with PE sponsors is necessary to ensure data investments are strategically aligned with the value creation plan. This integration ensures that data initiatives contribute directly to the exit strategy, maximising the potential for achieving desired exit multiples.

The value of data in driving growth

As private equity firms increasingly recognise the value of data in driving growth, COOs and CIOs play a pivotal role in ensuring that portfolio companies harness the full potential of their data capabilities. By embedding data at the heart of the business, strengthening governance, exploring data monetisation opportunities, and investing in digitalisation and automation, they can help create well-positioned companies for successful exits.

In the current volatile and competitive market, data is more than just a tool for improving operations—it’s a strategic asset that can significantly enhance a company’s valuation. COOs and CIOs who understand and embrace this will drive value for their investors and ensure their companies stand out in the eyes of potential buyers.