Due Diligence needs to be done thoroughly, and correctly, to ensure that the investment is as secure as possible, and made in the right company, especially in the Private Equity arena.
Many investors put almost their entire focus on ‘the numbers’ that are put in front of them, or derived from various historical internal company data, often from fragmented systems. In effect they are reliant on the openness, honesty, transparency and capability of the existing management team to provide good, accurate and objective information and views. This can be very risky.
There needs to be more emphasis on more market driven and comparable data as well as the softer aspects such as people, culture, capability and similar. Large PE companies often have in-house experts to evaluate their potential investment products, USP’s (Unique Selling Propositions), competitors, market share and growth, and all the other important and relevant factors that can determine success, or failure, and validate the proposed business plans. Mid-size PE houses more often have a generalist that covers these other areas, and small Private Equity companies have to go outside to get this help, or risk more exposure based on just looking at the presented numbers.
A good Non-Executive Director can help both pre- and post-investment and certainly with the Due Diligence process; someone with a vested interest in getting it right rather than just a consultancy that produces a report and doesn’t have to live with the consequences. This is even more critical with turnarounds which, by their very nature, are in the mire for a reason and need a change of approach to succeed; in these cases it is not just about stripping out cost to make them profitable, but also about a tangible business plan to get the business to grow and prosper and get the Return on Investment. If you would like to know more, or need help with thorough Due Diligence, or need a Non-Executive Director to ensure success with your investment, then please contact me…