Chapter 11
Deal analysis and due diligencea
11.1 INTRODUCTION
Imagine you are a private equity investment professional. After months of searching in one of your preferred industry sectors, you think you have found a great target for investment. It is likely to cost in the region of £300mn—about the right size for your fund. It is a solid industrial business (turnover £400mn, EBITDA £60mn) with factories in four European countries, a sales operation in the U.S., a series of distribution outlets, and joint ventures in Asia. The widgets the company sells are in a sector you believe will benefit from the current upswing in this industry.
11.1.1 A buyer’s perspective
Before you part with £300mn of the fund’s capital you will have lots of questions you need to get answers to. How have sales progressed, are revenues growing or shrinking? Has growth been achieved organically or by acquisition? Are the factories safe and efficient? Are there any environmental hazards or risks? Why are there no direct Asian operations? Is the U.S. operation healthy? Is the economic environment and the market sector a safe bet, or is the upswing already turning down? What kind of pension scheme is operating and is it in deficit?
Trying to get satisfactory answers to these and many other critical questions is the task of “deal analysis and due diligence”. There are many different ways of doing it; it can involve no, some, or many advisors; it can take from a few weeks to many months; it can be in one, two, ...
