The heady days of 2007 and 2008 meant doing the deal first and evaluating the company later, giving some leading Private Equity Firms and their investors a real “Excedrin Headache.” Fortunately, as 2009 progressed we saw a distinct focus on operational practices. Consequently, we thought a summary of lessons learned during various stages of portfolio company ownership might be a useful reminder given the amount of investor capital in search of a home.
1. In 2007 and early 2008, many PE firms did not conduct pre-acquisition due diligences; expediency and buying frenzy were the lead dogs. During 2009, we saw much more focus on making sure the business operations were relevant, competitive, and cost efficient. We believe there is still much to be done in many cases. Fortunately our business driven IT services will prove useful to many clients this year. Accordingly, we’ve even added a few new bells and whistles to our engagements to provide even greater value received.
2. PE firms did not pay enough attention to PIP due diligence report details. We are sorry to report that many managers rubber-stamped the results of our reports. In this past year, however, PE firms spent more quality time reviewing our due diligence findings at the initial review meetings and during the report delivery follow-up sessions. Equally important, in virtually all cases, substantive actions were taken that either validated or improved the investment thesis.
3. There was a distinct shift in many PE Groups from the big consulting firm “check-list” approach to a more pragmatic comprehensive operations review and IT due diligence. Our clients learned, while not glamorous, the devil is in the details, and needed to be acted upon. Leaving things to chance was no longer an option. At the risk of sounding self-serving, what we do and how we do it has always been designed to fulfill your needs. That’s why we performed more engagements with more clients than any time in our history. We thank you for that.
4. Private Equity firms, with no comprehensive due diligence history, whose thinking was ‘why spend the money,’ were pleasantly surprised at the positive fiscal impact the suggested improvement opportunities could have on their immediate business, and in many cases without large out-of-pocket investments. The lesson learned: every PE firm should make a comprehensive due diligence a pre-buy prerequisite – each should start from a business operations perspective – and delve deeply into all aspects of the technology infrastructure.
When it comes to hiring a due diligence firm, ask yourself: Will they deliver what I need in the time frame I need it, at a price that seems reasonable? If they do, partner with them; if they don’t, look elsewhere.
Read one of our testimonials:
“Information Technology is a critical and complex factor that can be a significant barrier to the success of our portfolio companies. We continue to utilize PIP for all of our due diligence and portfolio company implementation projects because they always act in our best interest, never sell us more than we need, and they keep it simple.”
Chairman and Founder, Liberty Partners