Private Equity reimagines the diligence process

Private Equity reimagines the diligence process

Competitive pressures are encouraging leading PE funds to reassess their M&A processes.

Men working in an underground potash mine

Competitive pressures are encouraging leading PE funds to reassess their M&A processes. KPMG professionals provide an overview of recent changes in PE’s relentless pursuit of value and consider the reasons behind these trends.

  1. Focus shifted to operational improvement
    PE’s focus is shifting from leverage and multiple arbitrage to operational improvement. Where operational value accounted for just over 18 percent of value in 1980, it soared to two-thirds of value by 20101.
  2. Future-focused diligence
    Analysis of the past is no longer enough. PEs want comfort on a positive future for the business – to identify the longer-term potential and operational upsides of assets.
  3. Leverage disruptive technology
    Big data combined with deep functional and sector expertise to predict winning and losing assets. With the spotlight on value, D&A identifies bankable revenue, cost and cash uplifts, together with potential shifts in business models that could significantly shift the exit modules.
  4. Assessing management
    Many leading houses are carrying out due diligence on the management teams using a variety of tools and technologies. It also may involve bringing in outsiders to the sector or by elevating talent from within to drive change and value.
  5. Emergence of the 1000-day plan
    The 1000-day or value creation plan focuses on long-term cementing of value from investment to exit, and is enacted from day one. Long term, sustainable improvements are now the order of the day.

Adapting to the new environment

Leading houses which adopt a seamless view of value, from origination through investment and implementation to exit, can be expected to continue to drive good returns. The key to achieving this is to have the right investment thesis that look at 5 to 6 properly diligenced levers. These thesis are focused on operational improvement, leveraging a future-focused diligence progress, empowered by technology and expertise, ensuring the right management and talent is in place, and all with a longer term 1000-day plan.

To find out how KPMG Deal Advisory conducts its due diligence process, leverages data & analytics and sector specialists, or for more information about the 1000-day value creation plan, please contact one of our global experts in the left-hand column.


1INSEAD Report ‘The value of in-house operations teams in private equity firms’, Financial Times, May 2015

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