In such a highly competitive market, private equity firms continue to pay high valuations to acquire quality assets. Whether acquiring a new platform or an add-on, using the diligence process as a tool to build value and jump-start the planning and integration processes will help accelerate the return on a higher purchase price.
Today, private equity investors may have to pay one or two turns more to win an auction and eventually close the transaction. Private equity firms continue to use the diligence process to identify the inherent risks in an acquisition, but are expanding the process to identify opportunities to drive value in the future. Doing so also speeds up post-acquisition planning and integration.
For sell-side diligence, a holistic, more value driven approach will certainly help identify gaps and vulnerabilities early on, but in addition will identify opportunities to build value that may have been overlooked by the current management team and private equity parent. The adage, “you don’t know what you don’t know,” may best communicate how sell-side diligence can be used as a tool to drive value.
If today’s market conditions persist, we expect to see more firms utilize the diligence process as a mechanism to speed post-acquisition planning, initiate value based integration strategies, and to accelerate growth.