The Journey Beyond the Closing Dinner In private equity, successful acquisitions are often celebrated with closing dinners, deal tombstones, and the satisfaction of securing strategic assets.
The Journey Beyond the Closing Dinner
In private equity, successful acquisitions are often celebrated with closing dinners, deal tombstones, and the satisfaction of securing strategic assets.
After the initial excitement subsides, the portfolio management teams have their hands full.
Of the many things they have to do, one critical workstream is to try to get up-to-speed as quickly as possible with the data and identified risks unearthed by the deal teams during the DD process.
The transition of value creation plans and known risks from deal teams to management teams is akin to a relay race.
The baton exchange must be seamless and precise to avoid dropping critical information along the way.
Speaking to management teams, they often raise the following challenges:
- they are often kept in shadows until the deal is inked;
- many of the bigger issues that come as surprises to the management team were flagged to the deal team during the DD, but proper attention was not paid to them in the process; and
- the DD data reaches them sporadically and often too late, regularly lacking the necessary context and prioritization.
From the discussions I have had, the root cause is an unstructured transition process from deal teams to portfolio managers. Often, this process is led by junior or mid-level deal team members rather than seasoned deal partners.
A director from one of the Big 4 noted that “it is surprisingly common for management never to see our due diligence reports”.
Some organizations also struggle to promptly incorporate feedback from portfolio teams in the face of evolving market conditions.
Another concern is that even when substantial risks surface post-closing, the relevant data and learnings are seldom centralized and captured for the benefit of future investments.
Some PE fund managers tackle these challenges head-on by involving operational specialists early in the due diligence process, fostering a culture of collaboration from the outset.
One partner at a PE fund told me “since we restructured our deal process to increase touch-points between the deal team and the PM guys, the post-closing transition has improved massively. There are certainly fewer complaints and much less finger pointing when the inevitable challenges do surface”.
It sounds obvious, but it remains surprisingly uncommon to have an integrated process.
Implementing changes in established processes is no small feat. However, the cost of inaction can be substantial, particularly when the industry can no longer rely on ultra-low debt financing to drive returns.
The transition of data from deal teams to operational teams is critical in delivering on value creation plans and investment returns.
I’d love to hear your stories. How does your organization manage the transition process from on-deal to post-deal? What innovative solutions have helped to bridge the gap at your firm?
