Human resources specialist 29Bison will soon launch a financial and human capital benchmarking platform that aims to help mid-market firms analyze and compare portfolio and target companies to industry benchmarks and peers, as well as help PE-backed firms improve performance.
The platform, AlphaCalc, is set to launch on June 1, and 29Bison has been beta testing it with private equity firms, banks and mid-market company CFOs.
AlphaCalc uses an AI-driven engine to analyze data against industry benchmarks and the financial data from nearly 1 million privately held companies in more than 2,600 industries, said 29Bison founder and chief executive Laura Queen. It creates bespoke reports that measure results against key human and financial capital metrics, as well as highlight concerns and areas for improvement.
Its central innovation, according Queen, is the incorporation of human capital metrics into analysis, rendering them tangible and measuring their impact on business performance and ranking them against customizable peer sets. That allows it to create reports that evaluate and score a number of otherwise subjective areas, like a company’s succession planning strategy, “mission and vision,” hiring and staffing practices and “employee capabilities,” among others.
It also creates customizable “business performance scorecards” analyzing where a given company stands relative to peers on financial metrics like liquidity, asset efficiency, business and loan risk and profitability. Users can compare metrics across a variety of peer groups, including industry, company size and region.
Potentially of most use amid the covid-19 pandemic, clients can put companies through ‘what-if’ liquidity and profitability scenarios. Chief innovation officer Jason Wood said the platform’s net balance position measure allows clients to determine their working capital needs and improve cash sufficiency, while profitability performance is measured by the return on asset investment measure. Scenarios can also be run for growth potential, given a company’s capitalization structure and financial performance, using the platform’s sustainable growth rate measure.
The firm also wants to add the ability to quantify and compare the performance of ESG-relevant policies and investments, said Wood.
“We think that over time we will have developed a really robust set of data in a world that is kind of a black box” when it comes to human capital assessments, added Queen, who noted that she has also spoken to LPs whose primary resource for assessing the human capital aspect of potential investments is Glassdoor – the website where employees anonymously review their employers.
Eric Lane, partner and chief operating officer at 29Bison, said the endgame is finding the “holy grail” of human resources: the identification and measurement of the impacts that make-or-break value employees and company policies have on their organization’s ultimate performance.
AI-driven DD
As the covid-19 crisis continues to stress both financial metrics and employees throughout the economy, 29Bison hopes the tool will help make managing portfolios through chaos easier. It is also intended to prepare firms and companies for potential transactions, said Lane. The Human Capital Transaction Readiness Assessment Score “allows the user to see just how ready their company is for the rigors of due diligence prior to a transaction,” he said. PE firm clients can send targets a link to upload the relevant data and then view the resulting reports analyzing the business, various areas of compliance and employees.
AlphaCalc’s human capital metrics include retention rate, human capital return-on-investment, EBITDA per employee, human capital value-add, training investment and several diversity metrics. Each of the metrics can be viewed and compared, and they also feed into an algorithmic calculation of a firm or company’s overall “people alpha” – a measure of the value that an organization’s employees add to its overall valuation, and part of the search for that ‘holy grail’ Lane mentioned.
Human capital ROI, for example, is calculated by subtracting both operating expenses and employee compensation (pay and benefits expenses) from revenue, and dividing that by employee compensation. It is meant to describe how effectively investment in human capital is supporting organizational goals, Wood explained.
The platform’s human capital element is based on the International Organization for Standardization human resources guidelines, published in 2018. The standard – HC ISO 30414 – aims to standardize human capital reporting to “better describe organizational value in a broadly comparable sense,” move toward a better understanding of the financial and non-financial returns investments in human capital, how it relates to future performance and advance best practices.
AlphaCalc will allow organizations to model changes in their financial practices “both qualitatively and quantitatively around some of these human capital metrics,” said Queen. “From a private equity standpoint, it allows a deeper and relatively quick dive into understanding how to create additional or optimize additional value in the business.”
Queen hopes that over time 29Bison will be able to run highly sophisticated correlation analyses using the platform, especially for small and mid-market businesses, which often have to resort to secondary data to assess their human capital.
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