Periodically, we review the underlying trends in the conversations we have with our Private Equity (PE) clients and prospective clients. As one might expect, in part these conversations run throughout working relationships. In addition, we conduct market research and we speak to many prospective clients.
This is the first of two short articles. It is a summary of the key trends we have seen in those conversations and is mainly focussed of the commercial aspects of how they position and handle Management Due Diligence (MDD) as part of the overall due diligence process. The second, is a summary of the methods used and the practical aspects of what they do.
Six notable Takeaways
- There is a very wide range of potential providers purporting to have the right skills for effective Management Due Diligence.
These range from single, self-employed professionals through to larger commercial consultancies and some specialists.
The key word here is “purporting” because there seems to be little agreement around what constitutes a good service or, indeed, value for money.
- There is no identifiable relationship between the level and type of MDD conducted (if any beyond basic checking that involved in relationship building) and means of exit.
Furthermore, there seems like no consensus on most desirable or least desirable features of MDD related to the exit scenario.
- A further absence of consistency and indeed, just absence entirely of consistent “Organisational Management Due Diligence policy” from Private Equity firms.
This is contrast so the situation that mirrors found in many, if not most, corporate clients even if, as in some cases, it is rudimentary.
For some smaller Private Equity firms some of “policies” appears to be ”on the hoof” and just determined by situation.
- It seems that there is not much attention to lower levels of senior or mid-level people where the source of potential future talent for development might exist up to exit.
Within a smaller and especially founder start up portfolio businesses, this is understandable. The little or no emphasis on succession planning and the risks associated with limited talent pools.
These are well discussed across most businesses generally, yet these considerations do not seem have prompted a similar concern for many Private Equity firms.
- Smaller Private Equity firms reflect flexible involvement in MDD. Some Private Equity firms expect portfolio companies to be accountable for assessment, others manage these processes centrally retaining control and, ultimately, accountability.
- An additional feature of smaller Private Equity firms when they do conduct MDD, is their focus on a top few people in contrast to larger Private Equity firms that review all things HR such as culture and structure.
In the context of the limited view taken on potential talent cited above, the lessons here for smaller Private Equity firms seem clear.
Summary
In summary, there are, of course, many similar takeaways from speaking with and working with clients and these points here are just the trends we have noticed over the last 12 to 18 months.
We are not presenting them as the definite picture of Management Due Diligence in the UK. Our conclusions are more modest.
It just struck us that in speaking to Private Equity firms, that there seems like some sensible debates to be had. Perhaps the overarching conclusion, is that our corporate clients are well ahead in having had the debates and made sensible commercial decisions accordingly.
About The Author
Dr. Steve Sloan is an acknowledged leadership expert and consultant who has over 20 years’ experience advising clients globally.
He can be contacted via email or by calling 07585 548420
