Private Equity (PE) firms are no strangers to the fast-paced world of business, where every decision can have a profound impact on the bottom line. When it comes to investing in and growing portfolio companies, the adage “measure twice, cut once” holds particularly true.

In addition to the financial verification provided by a QofE, an operational diligence provides full visibility of any potential risk factors before the deal closes. We’d like to make a compelling case for why preparation before deal closure is critical for confident operational planning and scalability.  Our 5 best tips:

1. Do the Operational Diligence

Operational diligence is the compass that helps PE firms navigate the uncertain waters of acquisitions. It’s the comprehensive assessment of a target company’s operations, financials, and risk factors. But this diligence isn’t just about ticking boxes; it’s about unearthing hidden value and uncovering potential pitfalls. Understanding all the variables is immensely helpful when balancing all the factors versus the investment decisions.  When you know what you’re getting into, you can plan for success more effectively.

2. Identify the full risk profile

Imagine investing in a company only to discover post-acquisition that there are significant undisclosed risks. This scenario can be costly and damage both the PE firm’s reputation and the portfolio company’s stability. Full visibility into risk factors during operations diligence mitigates such surprises and enables PE firms to negotiate terms and allocate resources more intelligently.  The risk profile is a full array of categories, including the safety and physical security of a business, business interruption, unbudgeted CAPEX requirements, misdirected corrective actions and so much more.  Identifying and assessing these risks is crucial for making informed decisions and planning to confidently scale for growth.

3. Build a strong foundation

Preparation before closing the deal sets the stage for everything that follows. It’s akin to building a house on a solid foundation. PE firms that take the time to thoroughly understand the risks and hidden value in a target acquisition can develop robust plans that add real value and eliminates obstacles. The diligence also helps you create relationships with the management team and employees, and chemistry that will help immensely during the post-close activities of stabilizing, adding value, and scaling the business.

4. Make a confident capacity change

Confidence is a game-changer. When you have full visibility into potential risks, you make decisions based on data, not guesswork. This confidence permeates every aspect of post-acquisition operations, from strategic pivots and resource allocation to open and transparent communication with the employees of the acquisition. Scaling the operation is no longer a distant goal, it’s the next goal. You built a solid foundation, removed the obstacles, and designed the process to perform. Now it’s time to scale the company, increase the velocity, and expand to your new capacity for the remainder of the investment cycle.  Invest in the right areas, optimize operations, and scale the business with precision.

5. Learn from others who have done it successfully

Some of the most successful PE firms are relentless in their pursuit of operational diligence. They understand that preparation is the key to prosperity. By studying their practices, one can see how thorough risk assessment transforms their portfolio companies into industry leaders.  As operational efficiency consultants we have worked with hundreds of companies and enjoy sharing benchmark data that is specific to an industry, industry adjacent or where there are similar operational challenges.  Outside-in expertise is invaluable to charting successful scalability.

The ProAction Group, and its Operational Diligence, provides a proven process for achieving exponential value for companies in a wide range of industries and sectors, including manufacturing, distribution, and business services.

We invite you to reach out to our team anytime to start a conversation about the benefits an Operational Diligence can bring to your company, as well as any related services we may provide, to help buyers buy and sellers sell.

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