The Advantage of Advanced Analytics: Power to Level Up Commercial Due Diligence

Asiri Silva & Iranga Mendis • October 10, 2024

In Part 1 of this series, Asiri Silva and Iranga Mendis discuss the importance of advanced analytical approaches in driving insights during CDD engagements. Throughout this series, we’ll explore these concepts further, including example case studies and a look at the future trends reshaping the field.

In today's dynamic business landscape, commercial due diligence (CDD) has become increasingly complex, demanding more sophisticated analytics to ensure successful decision-making. Professional services firms are increasingly turning to advanced data analytics to gain better insights and provide more precise forecasting for strategic value creation. At Stax, our Advanced Analytics team leads this evolution — focusing on growth opportunities, consumer insights, and emerging trends. We deliver elevated value through comprehensive deliverables and identifying opportunities for future strategic value creation, empowering our clients to make more informed and impactful investment decisions. Our key specializations in CDD engagements include the following areas:

Uncovering Growth Opportunities with Whitespace Analysis: Our team excels at identifying untapped market opportunities and quantifying growth potential through whitespace analysis. Using geospatial and competitor analyses, we simulate customer buying patterns and decision criteria. Our predictive models and market optimization algorithms highlight pockets with favorable demand-supply imbalances, guiding our clients to develop a strong understanding of the potential for future markets, acquisition targets, or product expansion opportunities, enabling them to gauge potential future expansion opportunities.
Gaining Customer Insights via Advanced Analytics: Our CDD work leverages state-of-the-art customer analytics to assess the stability and growth potential of target companies. By combining methods like clustering techniques, predictive models, and sentiment analysis, we identify the most valuable customer segments, estimate lifetime value, and forecast future customer intent, ultimately assessing its impact on the business.
Identifying Price Optimization Opportunities: In CDD engagements, Stax performs pricing diagnostics on internal transactional data to identify opportunities for potential price optimizations and estimate their impact. Additionally, we model price elasticity through conjoint studies to uncover value creation opportunities post-close.
Forecasting Market Dynamics with Business Cycle Analysis: We use predictive analytics to model market uncertainty and understand its impact on business performance under various market scenarios—both upside and downside. These scenarios help our clients understand potential risks and factor them into the valuations.

Asiri Silva

Associate Director

Iranga Mendis

Manager

Asiri Silva

Associate Director

Iranga Mendis

Manager

Uncovering Growth Opportunities with Whitespace Analysis: Our team excels at identifying untapped market opportunities and quantifying growth potential through whitespace analysis. Using geospatial and competitor analyses, we simulate customer buying patterns and decision criteria. Our predictive models and market optimization algorithms highlight pockets with favorable demand-supply imbalances, guiding our clients to develop a strong understanding of the potential for future markets, acquisition targets, or product expansion opportunities, enabling them to gauge potential future expansion opportunities.
Gaining Customer Insights via Advanced Analytics: Our CDD work leverages state-of-the-art customer analytics to assess the stability and growth potential of target companies. By combining methods like clustering techniques, predictive models, and sentiment analysis, we identify the most valuable customer segments, estimate lifetime value, and forecast future customer intent, ultimately assessing its impact on the business.
Identifying Price Optimization Opportunities: In CDD engagements, Stax performs pricing diagnostics on internal transactional data to identify opportunities for potential price optimizations and estimate their impact. Additionally, we model price elasticity through conjoint studies to uncover value creation opportunities post-close.
Forecasting Market Dynamics with Business Cycle Analysis: We use predictive analytics to model market uncertainty and understand its impact on business performance under various market scenarios—both upside and downside. These scenarios help our clients understand potential risks and factor them into the valuations.

Emerging Trends in Data Analytics for Due Diligence

1. Data Generation: One Data Source isn't Enough

At Stax, we recognize the evolving role of advanced analytics in due diligence and are committed to expanding and optimizing our offerings while continuing to remain at the forefront of these developments. We’ve identified several key trends reshaping the analytics landscape:

AI and Machine Learning Integration: AI and machine learning are now central to data analytics in due diligence. These technologies enhance our ability to process and analyze large datasets, providing more accurate and actionable insights. For example, AI can identify patterns in customer data that predict future behaviors or reveal hidden opportunities in market data.
Greater Access to Data in Virtual Data Rooms (VDRs): There is a clear trend toward increased availability and richness of data during diligence processes. Moreover, investment banks are now more willing to collaborate with companies to provide granular data when needed, enhancing the depth and breadth of data available for analysis. This greater access to detailed information opens up new opportunities for Advanced Analytics teams to play a more prominent role in CDDs, enabling a more robust, data-driven assessment of the target than was previously possible.
The Rise of Alternative Data: Gone are the days when internal data, traditional secondary research and surveys were the only source of CDD. Now we frequently bring in alternative data sources like social media reviews, POI data, POS, or credit card transaction data, and mobile foot traffic data to our core workstreams, enabling a more comprehensive view into a target's strengths and weaknesses. We regularly test newer alternative data types and vendors for greater efficiencies.
Ethical Data Usage and Compliance: As data analytics becomes more pervasive, ethical considerations and regulatory compliance are gaining prominence. Consulting firms must ensure their data practices align with legal requirements and ethical standards, particularly concerning data privacy and consent.

Stax Advanced Analytics team is fully embracing the future of analytics to deliver even greater value in commercial due diligence. By integrating cutting-edge techniques, we're enhancing our existing services such as consumer insights and whitespace analysis while expanding into adjacent exploratory spaces to drive better client outcomes. As we continue to build our capabilities, we'll continue to offer deeper insights, more comprehensive strategic advice, and ultimately, greater success in our clients' deals. To learn more about Stax and our expertise, visit www.stax.com or click here to contact us directly.