Private equity investors should conduct a strategic “Re-Diligence” exercise at least once every three years for each portfolio company. Regardless of how well the company is performing from a financial standpoint, private equity owners should look for actionable next steps and consider carefully whether the time is right to re-invest in the business, milk it, or sell it. The process involves strategic research and analysis, and reveals the action steps the owners and managers would take if they were acquiring the business for the first time today.
Below is a list of considerations owners and management take into account during a “re-diligence” exercise:
Go/No Go.
· If given the opportunity to buy the business today would we do the deal?
· If not, is now an appropriate time to sell?
· What should we do to improve upon the attractiveness of the business today, to make it more attractive for a prospective acquirer?
Strategy.
· Does the strategic direction of the company make sense, given internal competencies, and external market trends, customer needs and competitor capabilities and intentions?
· If not, how much of a realignment would be prudent at this time?
The Market.
· Are we competing in the most attractive segments of the market, where growth is more rapid, customer needs are more discreet, and competition is less intense?
· If not, what are the steps to serve this ancillary segment?
Customers.
· Given the evolving purchase decision criteria of customers and prospects, and their unmet needs, are our capabilities still aligned with their needs and interests?
· If not, how much of a change should we be making?
· Which customer/prospect needs should we be addressing first?
Competition.
· Are we at least as well positioned in the market vs. competitors as we were when we acquired the business?
· How have competitor capabilities evolved?
· What are competitor intentions in the market?
· Is there anything to learn from these competitors’ strategies?
· Should we be emulating them or carving our own path?
Human Resources.
· Given the size and stage of our business, do we have the right people in the right places doing the right things to accomplish our goals?
· Are the incentivized and motivated?
· Are they communicating appropriately?
· What HR changes would we want made if we were acquiring the business today?
Operational Efficiency.
· Across the process steps that must be carried out in order for the company to receive revenue, has anything occurred to make these processes less efficient?
· Are the steps being carried out in the most logical order? Can some steps be consolidated or eliminated?
· Are there more efficient means of executing these steps? If so, what are the costs and benefits of changes?
Summary.
Consider which of the above actions would rise to the top and need to be carried out.
· In terms of difficulty, how would they be prioritized?
· In terms of impact on addressing the strategic goals of the business, how would they be carried out?
· Who is responsible for executing each of these actions?
· What is the timeframe for carrying them out?
Executing this list of “re-diligence” action items on at least a three year cycle ensures that your investment remains attractive to potential acquirers. And it is also likely to improve performance, which may have a direct impact on the bottom line in the near term, as well.
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