Kensho industry use case: Private equity due diligence for Credit Agreements (CAs)

See how Kensho Classify and Extract KVP help private equity associates cut through credit agreement complexity and accelerate due diligence.

This blog is part of our series on how Kensho solutions can be used in various industries to unlock insights hidden in messy and unstructured data.

Private Equity (PE) is one of the fastest growing and most lucrative sectors of the financial industry. PE firms buy private companies, restructure them, and work to sell them for a profit. When a PE firm has identified a company of interest, it must conduct research on various aspects of the company, financial, legal, commercial, etc. in a process called due diligence.

Use Case Drill Down: How Private Equity Due Diligence for Credit Agreements fits into the wider industry

Challenges

Because these companies are private, structured information like that found in SEC filings and annual reports for publicly-listed companies is often unavailable. Instead, PE firms rely on a collection of documents provided by the company they’re considering buying, the target company. These documents vary widely in layout and file format. Target companies typically share these documents in a non-systematic way via a “data dump” into a virtual data room (VDR), typically a secure file sharing platform. In the VDR, key data points of interest to the PE firm have to be identified manually, usually by a junior associate. During the financial due diligence process, a company’s creditworthiness is assessed by reviewing its existing credit agreements — which can be 100 page or longer documents — and identifying key information points such as Loan type, Issuer, Commitment Amount, Fees, Maturity Data, etc. The process is time consuming, manual and error prone.

Solutions

Following is how the Kensho team envisions our tools being implemented for this use case:

Documents placed in VDRs are often in non-machine readable file formats (e.g. PDF). Kensho Extract can convert documents to .txt format to allow for full text search. Once in text format, Kensho Classify can help identify key paragraphs where data points of interest might exist. Classify would help a human reviewer find and access information more quickly. Similarly, one of Kensho’s tools that’s in development now, Kensho Extract Key Value Pair (KVP), will be able to programmatically extract values that are relatively consistent and easy to identify, though will likely also require human review.

Classify and Extract KVP are complementary solutions that would help PE Associates more quickly “scan read” documents in the due diligence process.

Use Case Visualized : Private Equity Due Diligence for Credit Agreements

Contact us to discuss how Kensho’s tools can help solve your industry challenges.