Private Equity Due Diligence

Private equity firms, despite different investment strategies, try to improve operational efficiency and enhance the value of a company before they exit at a set time. Operational due diligence statistics highlight opportunities to cut costs and this is the place where most PE deals will see the majority of their value creation. This could mean cutting out non-profitable product lines, closing stores within close proximity, or bringing in new technologies to generate additional revenue. These changes could also stir up legal issues, and that is where an extensive and thorough legal due diligence process is crucial.

In terms of financial due diligence the PE company will look at the same documents that any other buyer would, including business plans, financial statements and contracts. However, there is a more intense concentration on the quality of earnings, with a greater concentration on things such as working capital cycle, debt/equity ratios and conducting an Monte Carlo simulation for the industry’s future growth potential.

The due diligence for operations and management stage is when the PE deal will take a closer look at the leadership team of the target and how it will be easy to collaborate with them in the future. This includes an in-depth analysis of how the what do you expect in technical due diligence management team manages day-to-day operations and looks at the manufacturing process of the company and its supply chain. It also observes the composition of power and authority within a company, and looks for areas that are at excessive risk (e.g. data loss or breaches). It is here that a relationship intelligence platform can prove to be very beneficial. It will be able to identify and connect you with the right experts in your network in just a few minutes.

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