Commercial Due Diligence and Private Equity Investments

Due diligence is a great chance to make sure that the private equity investment has a sound growth strategy. This is particularly important in a high-multiple environment where private equity investors have to show significant growth in order to reach their internal rate of return threshold rates.

The most successful private equity firms double-check the information contained within a confidential Information Memorandum (CIM) by soliciting specific commercial diligence. This helps them confirm what the CIM says with additional information to support their Day One growth strategy.

Legal due diligence is an essential element of this, ensuring that the purchase won’t expose the new owner to unforeseen liabilities. The legal team will review the company’s structure, ownership details and stock information to determine if there are any potential issues.

Physical assets, such as the facilities, equipment and stock, are examined in commercial due diligence. This will verify that the assets are in good order and uncover any https://webdataplace.com/a-beginners-guide-to-private-equity-data-rooms-and-effective-deals opportunities for improving efficiency or increasing the use of assets. The team will also look over the human resources documents to determine the company’s leadership, human capital, and organizational charts, as well as roles. They will also check the treasury records to confirm the amount of shares that have been purchased, and look for rights and debt equity agreements, or securities that may grant current owners rights that are preemptive. In the end, the team will look at a company’s legal contracts and agreements to find any potential roadblocks to future expansion or M&A.