Due Diligence Specialists for Private Equity firms

When Private Equity firms do a due diligence on a potential investment, some call on Arrowstone Interim Management in Belgium to gain access to top, sector-specific talent. For some, it has become standard procedure in their evaluation of a company. Here are some examples and results.

Case Pharma company

Client: Private Equity firm investing in mid-size companies, many potential sectors.

Target Company: Pharma company, Turnover 55M€, developing and marketing added value complex generics.
Issue: Evaluate the strengths/weaknesses of their R&D and their strategy, a key success factor.

Interim Manager: Just retired CEO of one of the major Pharma companies, coming himself out of R&D.

Duration and cost: 5 days. 2.500€/day.
Results: Positive assessment, with precise SWOT on R&D and Strategy. Deal was closed. Successful growth traject and exit also after 4years. The Interim Manager was also offered a non-executive Board position.

Case Family business in Manufacturing of School Furniture

Client: Private Equity firm investing in mid-size companies, many potential sectors.

Target Company: Manufacture of Furniture for schools and communities. Family business, growing, 3 plants in different countries.
Issue: Evaluate their market positioning, their industrial facilities and their price positioning. Sustainability.

Interim Manager: International Manager having been CEO of different manufacturers of furniture.

Duration and cost: 6 days. 1.500€/day. Visit of the plants, face-to face with Management.

Results: Positive assessment of the plants: great technical level, lean efficiency, agile. Good commercial network and positioning. Sustainable margins. Deal was done. Growth path underway.

Case Green and solar energy

Client: Private Equity firm investing in mid-size companies, many potential sectors.

Target Company: Green energy, solar energy. Created by entrepreneur. Young, successful company, high growth.

Issue: Evaluate the business model, its sustainability, the risks.
Interim Manager: Interim Manager and entrepreneur, coming from the sector, having sold his company some years before.
Duration and cost: 6 days. 2.000€/day.

Results: The company was very dependent on public subsidies, who could be put in question in the future. Contracts with customers (private & small businesses) proved to have major flaws and future profitability was sure to be impacted. Conclusion: high growth, even higher risks. Deal was cancelled. The company does not exist anymore.

Case Automotive supplier

Client: Private Equity firm investing in mid-size companies, many potential sectors.

Target Company: Automotive supplier, Tier 2. 450 people. Precision metal parts. Numbers were good. Company was to be divested by an industrial group.

Issue: Evaluation of commercial positioning, strengths and weaknesses. Evaluation of their industrial capabilities and of their 2 plants.
Interim Manager: Interim Manager having been COO and GM of very large Tier 2 companies. Having great network in major automotive OEMs and very sharp Operations management background.
Duration and cost: 4 days. 2.000€/day.

Results: A first tour on the work floor and it was clear that machinery was in average to bad state, and that the safety culture was in great neglect. Protection features had been removed to allow easier work; oil was leaking where it should not… This was immediately visible to someone who ‘has been there’. Second came the commercial positioning. It appeared that the group selling the company had another, offshore one that it wanted to promote. In this competitive sector, where new low-cost producers were announced, the position of the company could become problematic. Conclusion: the deal was cancelled.

Summary

As shown, in some cases, the assignment is a deal-stopper for the acquisition. But the very sharp analysis by an experienced Manager from the sector proves invaluable. The observations are made by sharp eyes who know and feel ‘how it must work’. Many of the important details would not be detected by a consultant or an analyst. Private Equity firms know that not spending is in those cases the better alternative to losing all.

And in the cases where the assignment helps to go forward and the deal gets closed, very often the Private Equity firm asks us to have the Interim Manger become a non-executive Board member. Trust has been created, added value proven. Cost/benefit of using Interim Management services to assist in a due diligence is a no-brainer.

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Belgium

Patrick Lhoest