Private equity firms that focus their efforts on high-profile due diligence areas risk leaving significant money on the table.
The private equity (PE) industry is poised on the verge of an avalanche of deals: in 2013, uninvested equity totaled more than $1 trillion, its highest recorded level. As the competition for attractive targets heats up, due diligence will take on added importance to ensure that investments generate the anticipated profits. Traditionally, PE firms have focused the bulk of their resources on high-profile areas such as commercial, financial, legal, and environmental due diligence. However, firms that give short shrift to operations risk leaving significant value on the table.
In our experience, operational due diligence can pinpoint areas where improved performance can generate significant amounts of value. Further, PE firms that conduct thorough assessments of operations can better position themselves to implement and execute strategies to achieve cost savings and efficiencies. Three operational areas represent the highest-value opportunities to make a substantial contribution to a deal’s bottom line.