Leveraging Market and Competitive Diligence Post-Close
We began as strategic advisors, working for multi-billion dollar transportation and logistics clients, assisting them in addressing their complex strategic decisions. Then we began assisting private equity clients in their post-LOI period, developing and presenting market and competitive diligence reports. Over the years, PE’s began to ask us to leverage the market and competitive diligence work as a foundation and assist them and their new investment management team in developing a new post close strategy. In so doing much of our PE work is now beginning to look like our traditional strategy assignments.
Developing a new strategy post close makes a lot of sense, on multiple fronts. First of all, the best time to begin developing a PE’s exit plan is the day after the close. Change takes time. And having as much runway as possible to implement the strategy is only prudent. Additionally, as many of the strategic changes require add-on investments, starting early provides the time to get the synergies into the EBITDA and growth numbers. But there is another “soft-side” reason for developing a new strategy post-close – it’s the perfect opportunity for the management and their new PE owners to get to know each other and how each other thinks. Working together to better understand strategic trade-offs is a much better time to learn to work together and learn how each thinks about the business then in the first board meeting… particularly if the first month’s numbers are soft.
Developing a new strategy is also not simple. It is usually quite a bit more complex than just selecting acquisition candidates. For example, if the operating company is in multiple markets or has multiple services, which are the best to invest in? Also what are the strategic needs from an investment – is the investment to get new customers and grow revenues, to gain assets, to gain capabilities, to gain people and expertise, or is it to gain operating efficiencies and cost synergies? Moreover, the strategy is not just a “what to do now” plan; it should reflect the expected investment hold time. In this way there is time for the strategy to consider and reflect expected sequencing of growth initiatives – for example can an acquisition in one area/for one reason not only not only provide value on its own, but can it also become a platform for future add-on acquisitions or to leverage its assets/capabilities to grow a different line of business?
No matter what the strategy decided upon, the value will come as much from the PE and management team working together and jointly understanding the potential benefits, risks and shortcomings of the strategy as from the strategy itself.