Supporting Due Diligence for Private Equity Firms
The ability of a target company to generate profitable revenue growth is frequently a central element of an investment thesis—after all, profitable revenue growth is the #1 driver of value creation.
Client Case Example
Disease Management and Wellness Company
The company grew quickly in its early years but growth stagnated. New acquisitions and business lines failed to achieve significant new synergies. However, management believed revenue growth would improve and was considering acquisition by a strategic or financial buyer. An interested private equity firm asked us to scrutinize the company’s revenue projections. We identified several significant risks to achieving the projected growth, including increased customer attrition, as well as critical required changes to the sales model, sales management and sales support practices. The private equity firm decided not to pursue the investment.
There are two questions we help answer for private equity firms during due diligence:
- What are the dynamics of customer demand, buying trends and customer perceptions that might impact the revenue forecast in the financial model?
- What can we learn (given limited access during due diligence) about the unique capabilities of the target to meet or exceed revenue projections?
While other consulting firms do market studies during due diligence, their conclusions are frequently based on a series of five-minute interviews. Our approach is different. We perform much longer (and richer) interviews of 30-45 minutes with current customers, former customers, targets and others to more fully understand the issues of importance in the financial model.
Based on these market interviews, we share meaningful perspectives with the PE firm on two topics: 1) risks related to achieving the revenue forecast in the financial model 2) potential upside in revenue growth that should be acted upon in the 100-day plan.
The Sales and Marketing function presents a number of risks and potential upsides that should be explored during due diligence.
Whether there are 3 or 30 days for due diligence, our approach can be tailored to provide meaningful insights for decision making.
For more information about our work in due diligence please contact us.