Beyond the C-level executive formerly at a target company, who else should investors tap for a unique perspective?
You need seasoned professionals at your disposal, but anymore, that is usually not enough. When evaluating an investment, it’s the people you connect with that will inform your views on a given company, industry and current trends and help you make your investment decision with confidence. Sometimes these experts come from unexpected sources. We’ve identified 5 often-overlooked due diligence areas for private equity investors. These types of advisors can be more difficult to find, but can offer critical insights that address your blind spots.
1. The Competitor
Current and former employees of a company in direct competition with your target can provide valuable insight into industry trends, the market, strategy, purchasing and operations.
For former employees, it’s important to use the “rule of three.” To help keep information relevant, focus on formers who are three years out of the industry, three years out of a company or three years retired. These advisors can provide excellent information about the competitive landscape of the target company and production and sales channels. Current employees might be less useful. Some will only speak in general terms and won’t delve into details—but they’re worth a shot.
2. The Customer
Your target’s customers, and their competitors’ customers, can be a treasure trove of information. Customers can provide insight on buying and spending habits and decisions and also illuminate opportunities for product or service expansion.
Target customers will help you learn more about a potential acquisition’s offerings and get to the “why” of how the customer chose the company as their provider. Talking to a competitor’s customer can give you useful information about the customer landscape and current or future usage trends. Mid-level managers often provide the best information; a plant manager or operations manager is more “in the trenches” than senior executives and might be more forthcoming.
3. The Subject Matter Expert
Industry association members, often with senior executive titles, can provide an immense amount of information about a given industry, such as its current state, trends and projections.
These individuals are typically current or former employees of a company in direct or indirect competition with a target company. Association members who deliver keynote addresses at industry events are recognized experts in their area, and can be useful resources. Their expertise may lie in a certain company or type of companies. A quick review of their recent keynote topics can help determine if they would be a good fit as a PE advisor.
4. The Consultant
Consultants know the ins and outs of a space and get paid by a variety of companies to share their expertise.
These individuals are typically former vice presidents or senior executives. They’re retired, but they’re still active in the space. Since they’re unlikely to have any binding contracts, they’re almost always willing to speak in-depth about their experience, the company or companies they worked for, as well as the space in general.
5. The Board Member
As active overseers of an organization, board members can provide useful insight into an overall industry through the lens of their individual experience and insight they’ve gained from board member colleagues.
Most board members are senior executives who have worked for many years in the industry, though some may be dedicated mid-level managers. Many will still be active in the space, though they may be retired.
The Bottom Line
Sometimes it’s spending 15 minutes with the right person, and not years of research, that provides the critical insight a buyer is looking for.
At Apex Leaders, we help PE investors identify, vet and connect with experts and industry leaders to help you confidently conduct due diligence around your key investment decisions. Building the right relationships will help you to win the right deals. Read more about our services, how we work and client successes.