Vendor Due Diligence
There is one universal truth in conducting a corporate carve-out or when a private equity firm selling a portfolio company — you want a successful exit.
This is easier said than done. There are a lot of variables at play and knowing how best to position your asset can be a complicated ask. Most often, this stems from too much attention to what you are selling and not enough on the asset’s position around what bidders are buying.
With vendor due diligence (VDD), there is a difference between good and great. Good VDD provides key data inputs for sales materials and validates management’s perspective. Great VDD generates a compelling equity story that resonates with potential sponsors. The good option gets you what you need. The great option gets buyers what they need.
How Pointe can help
From day one, we approach our vendor due diligence through the prism of potential acquirers. We build an investment thesis, we stress test the asset’s attractiveness, and we identify the most exciting (and feasible) opportunities for the next hold period. The end-result is a well-articulated equity story, key data inputs for the sales material, and a playbook for management on how to address bidders' toughest questions. This process typically includes several key elements:
Formulate a testable investment thesis for an acquisition candidate
Define, size and forecast growth for a target’s addressable market
Determine the defensibility of the target’s base business
Highlight upside opportunities and articulate value creation potential across subsequent hold periods
Identify key challenges from prospective bidders and develop playbook for management to address key questions during sales process
Relevant use cases
Middle market private equity firm requested support in preparing industrial goods manufacturer for sale. We developed a comprehensive report that included a business review, market outlook forecast, competitive analysis and business cases for potential growth opportunities. The result was an accelerated process with a large number of bidders.
A private equity firm was preparing to exit its position in a consumer goods company. Success for the deal required granular insights on what growth was related to COVID disruptions. Pointe deployed advanced analytic techniques to ensure high confidence for prospective bidders on the range of potential outcomes. As a result, the asset was sold in an accelerated auction for a higher multiple than expected.