Guides
Your insider guide to private equity
Confirmatory Due Diligence
Congratulations on signing the investment term sheet!
The next step in the private equity investment process is confirmatory due diligence, a comprehensive examination of your company’s operations and finances.
Common Forms of Due Diligence
a. Financial: This entails a detailed analysis of your financial statements (usually covering your last two financial year-end and year-to-date management accounts), accounting practices, revenue streams, historical performance, and future projections. Be prepared to provide comprehensive financial records, including audited accounts, tax returns, and critical contracts.
b. Legal: Our lawyers will carefully examine your legal documentation, such as contracts, licenses, permits, intellectual property rights, and ongoing legal disputes. They will also ensure that your legal records are well-organised and readily accessible for review.
c. Commercial: This aspect focuses on market dynamics, competition, industry trends, and your business model’s overall commercial viability. Expect questions about your target market and sales channels, as well as interviews with key customers and suppliers.
Preparing for It
Tip: Request the information request list (‘IRL’) from each due diligence provider 2-3 weeks before the due diligence commences.
a. Organise Documentation: Compile all relevant financial, legal, and commercial documents. Ensure they are well-organised and up-to-date.
b. Address Red Flags Upfront: Identify potential issues or weaknesses in your company’s operations, finances, or legal matters. Proactively address these concerns and have clear explanations or mitigation plans.
c. Appoint a Point Person: Designate a senior individual from your team as the main point of contact. This person should consolidate questions and circulate them to responsible parties for answers.
Communication and Transparency
Prompt answers and open communication are vital to building trust and demonstrating your commitment to a successful partnership.
Confirmatory due diligence is a crucial step in the private equity process. By being well-prepared, organised, and transparent, you can navigate this stage effectively and increase your chances of securing a successful investment. Best of luck!
You are now ready to enter the documentation stage.