Commercial Due Diligence and Private Equity Investments

Posted on: August 30th, 2023 by Cathy Caldwell No Comments

Due diligence is a fantastic opportunity to ensure that a private equity investment is backed by a solid growth strategy. This is especially important in a highly multi-faceted market, where private equity investors have to grow significantly in order to achieve their internal rate of return threshold rates.

Smart private equity firms double-check the information contained in the confidential information memorandum (CIM) with specific commercial diligence requests. This allows them to confirm what is contained in the CIM with additional information which can support their Day One Growth Strategy.

Legal due diligence is an essential element of this, ensuring that the purchase will not expose the new owner to unforeseen liabilities. Legal experts will examine the structure of the company as well as the ownership and stock information to identify any issues that could arise.

Physical assets, like equipment, facilities and stock are also scrutinized in the commercial due diligence process. This will help confirm that the assets are in good order and highlight any opportunities to improve efficiency or improve the utilization of assets. The team will also examine human resources documentation in order to understand the company’s leadership, human capital, and chart of orgs, and also the roles. They will also examine the treasury records to verify the number of shares that have been bought and then look for rights, debt-equity agreement or securities that could provide current owners with preemptive rights. The team will also examine the legal agreements and contracts of a business to discover any roadblocks that could hinder growth or M&A.