If you work in the private equity sphere, you’ve likely heard about the benefits of using advisors in the due diligence process. When making the decision whether or not to pursue multi-million dollar deals, there are certainly a lot of boxes to check. But why go through the effort to find an advisor for the deal? Here we’ll cover six benefits of advisor use during the due diligence process.
Perhaps the most obvious benefit of advisor use is an advisor’s industry expertise. While a private equity fund investor may know general information about an industry, only an insider with years of experience will be able to provide the detailed information critical to deciding whether or not to move forward with a deal. An advisor’s years of work within an industry will yield critical insights to inform a potential deal’s value.
Who better to provide insight on a company than someone who once worked for a competitor? Valuable advisors will have opinions on a company from a competitive standpoint - what are the target company’s strengths, weaknesses, opportunities, and threats?
Working with someone with operational expertise can help your fund uncover any blind spots when evaluating a target company. An advisor with knowledge of what it takes to successfully run a particular type of company will be able to expose any unrealistic optimism in the target company’s CIM.
Because of their expertise, industry advisors often command a high hourly rate. However, it’s wise to invest a smaller sum up front in order to avoid a potentially disastrous acquisition. Just as you likely wouldn’t buy a car without doing some research, it makes sense to invest in some time with an expert before committing to purchasing a company in an industry with which you may not be entirely familiar.
When considering a deal, speed is key; using an advisor can help you get to yes or no more quickly. According to a 2017 Deloitte survey, sellers consider speed and conviction of closing a transaction, alongside price, to be key factors when choosing a successful offer.
If your fund does go ahead with the acquisition, you’ve already got a head start on finding potential advisors to sit on the board for the new company. Having an advisor bench on hand can be beneficial during the transition period and as the company comes to pivotal moments in its growth.
It’s clear to see there are many benefits to using advisors in the due diligence process -- in today’s competitive landscape, it’s critical to differentiate your firm in the bid process. Their industry expertise and competitive knowledge can help a fund avoid costly, expensive mistakes up front. In addition, advisors are potentially great additions to the board to share their insight during key moments of transition in growth.
If your fund could benefit from an advisor in the due diligence process, try out a risk-free 30 day trial with InquireOf. With a low monthly subscription fee for the whole firm, search for and connect with as many advisors as you would like and build your go-to advisor bench. Make sure that lack of industry insight doesn’t hold your fund back from the next great deal.
