Commercial Due Diligence and Private Equity Investments

1 minute, 15 seconds Read

Due diligence is a fantastic opportunity to ensure that a private equity investment has a well-planned growth strategy. This is crucial in an environment with high multiples, where private equity investors must achieve substantial growth in order to meet their internal rate of return hurdle rates.

Smart private equity firms double-check information in a confidential information memorandum (CIM) with specific commercial diligence requests. This lets them confirm what is contained in the CIM along with additional information that can support their Day One Growth Strategy.

Legal due diligence is a crucial element of this process as it verifies that the purchase won’t create the new owner unforeseen liabilities. The legal team will look over the company’s structure, ownership information and stock information in order to find potential issues.

The physical assets, including facilities, equipment and stock, are also scrutinized in the commercial due diligence process. This will ensure that the assets are in good order and uncover any opportunities to increase efficiency or increase utilization of assets. The team will also study documents related to human resources to comprehend the company’s leadership human capital, chart of orgs, as well as roles. They will also check documents for treasury to verify the number shares that were purchased and search for rights and debt equity agreements, or securities that might give current owners rights that are preemptive. The team will also look at a company’s legal contracts and agreements to find any possible obstacles to future expansion or M&A.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *