Why Speed and Flexibility in Due Diligence Gives PE Firms an Edge

In private equity, there is a need for speed. The landscape is competitive. Every major deal can be shopped to many investors, so PE firms must act fast.

In some consulting engagements there is a “learn it in the morning, bill for it in the afternoon” approach. These engagements can provide important market information but lack the nuance that only first-hand experience can convey. That’s where access to an expert network that can be a consultative partner that responds to your unique needs can help you move quicker than your competitors when a deal needs to be done.

To give our clients the competitive edge they need when it comes to due diligence, GLG puts together tailored teams of seasoned subject matter experts with deep experience across industries and disciplines, connecting clients with the critical market knowledge they need to make the smartest deal.

It’s not always easy for middle-market PE firms to quickly get up to speed in niche industries. An army of consultants can build a market sizing model, but the former CEO of a competitor can tell if your target company is a real player in the field or that the market is not as big as it appears to be.

“A service like GLG can provide speed, flexibility, and the nuanced insight that is essential for smart diligence,” a GLG expert said.

When expertise comes from many sources, the data requires a still point upon which to turn. This “still point” is often an expert with years of first-hand experience who can control the conversation, learn quickly, ask the right questions, and deprioritize those questions that are not important.

Identifying Red Flags

Speed and expertise are also important when things go the other way. For example, GLG did a project for a middle-market PE firm that was looking at a manufacturer of very specific computer parts. Seventy percent of the manufacturer’s sales was with one customer. Before they spent approximately half a million dollars on a full due diligence project, they asked us, “What is the risk associated with this scenario? What happens if they lose this customer? What is the likelihood of that happening?”

While the firm had a broad understanding of the industry, the questions they had required specialized insight. GLG had only a week to complete the work. We brought in one of our experts to lead interviews of a variety of industry stakeholders to gather information about the “stickiness” of relationships within this industry and uncovered a red flag. In this industry, customer/company relationships could be tenuous. It was not a good deal to pursue.

Another example: GLG did a full project for three weeks for a PE firm looking to acquire a green cleaning products company. GLG built a team of three people to conduct the work for the client, including a veteran industry player and a former executive of a competitor. The project was broad, requiring a market sizing study, a voice of customer study, and a complete landscape analysis. The research completed by the team showed that the brand had little recognition in the market. Another red flag.

Our expert underlined this, saying: “This definitely happens. Both at the market level and the target level, GLG can help uncover insights that essentially imply that the deal in that format is not a good idea.”

Most commercial due diligence now takes a phased approach, which imposes a practical calendar for getting the work done. Within this time frame you can sketch a picture of the market and where the company fits within it. But a sketch is not a finely detailed drawing. Things are not yet precise. For a PE firm to offer a bid, they need the precision only an in-depth project led by an expert can bring. An expert can go back over the sketch and fill in the details. With their insight, delivered quickly, the picture is far clearer.

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About five years ago, GLG launched a suite of solutions geared toward giving PE firms the edge they need to build conviction quickly. Our focus is on building flexible, agile solutions that support key phases of the diligence process. We connect PE firms with first-hand experience in a particular space or target, including former employees of a specific company or its competitors, customers, suppliers, or regulators. Our work includes fully managed market assessments and due diligence studies. If you’d like to learn more about how GLG works with PE firms, please let us know.