There are a lot of experts offering M&A advisory guidance to private equity leaders, but the real dilemma for Private Equity deal makers is managing consistent and positive deal flow. The effectiveness of a due diligence is the lifeblood of any investor; seeking the right advisor that can help avoid a false positive or a false negative result is priceless and having the ability to foresee a bad deal ahead of time or prevent a missed opportunity first is invaluable.
The expense of a thorough due diligence assessment, although not as impactful as something missed in the diligence process, is not an insignificant consideration for a deal. Under or over-spending in due diligence services can turn out to be a painful mistake for any investment in the future. At times, it can be a matter of “pay me now or pay me later” and regardless of whether the deal goes through or not, making the right level of effort in the due diligence process could help avoid a bad investment or help structure the deal for a positive outcome.
The right advice can also help with minimizing deal risk. The right diligence process will ensure the deal progresses fluently, with the support of the investment committee while providing sufficient backing to the managing investment partner to avoid issues downstream. For example, a shallow due diligence could result in a difficult integration while a thorough diligence immersion can help accelerating the process of successfully achieving synergies supporting the successful business transformation thesis.
The list of tips below includes critical success factors to consider when selecting the right team to support your investment due diligence process.
M&A Advisory Guidance: the people, the process, and the technology
You have likely covered the financial due diligence evaluation as part of your search and targeting. The deal seems attractive, and you have the financial acumen to know that on the surface it meets your requirements to support an investment in the due diligence process. Still, achieving a successful business transformation thesis and driving the highest possible return on invested capital requires a deeper look and evaluation into the people, processes, and technology.
You need to consider the talent and skillsets of the target company’s people, as well as the overall organization and culture and how they align or not with your overall transformation thesis. Are there gaps and if so, do you have the pool of resources and skills to cover them temporarily? Are there needs for immediate replacements and if so, do you have the networks that can help you find the right talent?
You should also evaluate the processes the company uses so that you can gain a deep business understanding of critical areas of the business that must be improved. Do you know these processes deeply enough to be able to quickly launch into improvement and transformation efforts? Finally, consider the target’s technology, especially enabling systems, which are critical to support the target company and can often be the Achilles heel of any transformation. Do you have the talent and know-how to assess systems and make the right changes here?
An industry expert can quickly help you cover all these critical areas at a strategic level and also can dive deeper into perceived areas of concern. Having the industry team in place will prove to be critical to the success of the transformation and to achieving a return on your investment. A hidden skill gap, an underlying cultural issue, a process risk that could expose regulatory compliance gaps, or a technology maturity gap could end up causing significant issues that can hinder the transformation.
A rapid yet comprehensive and wide evaluation during diligence, with potential deep dives on sub-areas across the people, process, and technology supporting the company, will prove to be the right diligence investment insurance for a successful business transformation.
End-to-End Support Post Diligence
Whether your plans are short or mid-range for your investment in the target company, you should seek support from experts that can help you not only during due diligence but that can also support you end-to-end through the evolution of the investment, inclusive of negotiations and most importantly, integration – ideally, over the first 100 days post investment and during the overall transformation.
Sometimes, seeking advice from one specific individual can be like looking for a needle in a haystack, and while a specific person could be the silver bullet you need, they are hard to find; in reality, you will need M&A advisory support throughout the duration of the investment from diligence to realization, making the reliance on “one individual” difficult and unpractical. Likewise, your needs might be too broad to be feasibly met all-inclusive from one person.
Overall, best practices show that the recipe for success comes from leveraging relationships with a provider team that can supply industry-specific services covering the whole gamut of needs from diligence advisory through turnaround execution.
You need a consulting provider to augment your team and that can give you experienced talent that understand the industry and subsector deeply. While a market research organization could be cost-effective during “minute 1 through 5” of the process, an industry service provider can be your true adviser to maximize your strategy throughout the duration of your investment.
At the end of the day it’s all about having enough information to make an informed investment decision while managing the appropriate degree of risk. Selecting the right due diligence services with an M&A adviser will play a significant role in your ability to make a sound and profitable decision, especially post-acquisition.
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Contributions by Courtney Loughran.