Private Equity Due Diligence

A private equity investment would not be complete without a thorough due diligence procedure. It’s the key to identifying potential areas of profitable operational changes prior to investing in a company.

The process usually starts with an confidential memorandum (CIM) A document which includes financial data, a description about the management team, and commercial details, including details on the target company’s customers and products. Smart private equity firms will then supplement the CIM by asking questions that are more specific, and using an electronic data room to collect documents from the company’s management team.

Legal due diligence is a crucial procedure, particularly when it comes to buyouts. Typically, the business plan for a buyout includes cutting staff or assets, selling them off or closing offices or facilities – and all of these activities have the unintended consequence of creating legal issues.

As private equity investors attempt to meet their internal rate of return (IRR) hurdle rates in the present era of high purchase multipliers, strong commercial and market due diligence is more essential than ever. A thorough approach to due diligence can assist private equity companies come up with a well-thought out day one growth strategy and unlock value more quickly than they would have thought possible.

To learn more about how Baker Tilly can assist you by ensuring due diligence, reach out to our team. We’re here to assist you with your next transaction. The featured image is credited to Getty Images.

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