Due diligence principles are the same regardless of the sector however there are some unique issues that private equity deals must overcome. Private equity investors usually have to work with less accessible information since companies that are not listed do not make their financial data easily accessible, and the process is time consuming for both sides because of this lack of transparency.
Private equity (PE), unlike strategic buyers are financial buyers. Their aim is to boost the value of an organization by driving improvements in operations. This is the reason why the PE industry is heavily dependent on quantitative analysis. It is possible to begin by assessing the position of the company within its industry, performing Monte Carlo simulations and viewing recent transactions in the industry and their multiples.
The PE firm will also do an exhaustive management and operations due diligence, which is focused on how the company’s leadership is performing and the areas where there are opportunities to add value. This includes analyzing performance metrics, understanding the technology that can help the company compete, and examining customer relationships.
The legal due diligence component is an essential component of any due diligence process and is a key aspect in determining if the deal will be concluded. To avoid costly delays, it’s essential to recognize and address potential legal issues as soon as possible in the process. PitchBook’s database of 3.5Mplus private companies makes it simple to quickly get comprehensive insight into the business and financial statements, including cash flow statements, income statements, balance sheets, financial ratios and multiples, consensus estimates, and fundamentals.