Private equity fund managers, do your homework and back a winner

SOURCE: HighQ

Private equity funds come in all shapes and sizes. You have funds that invest in entrepreneurial start-ups, you know, the ones whose main asset is just a great idea. And then you have the funds that buy established businesses in more traditional industries (retail, transport, resource, and so on) with the aim of reviving them to their former glory.

Most companies sit somewhere in the middle of these two – the small and medium-sized enterprises (SMEs). And that’s where most private equity funds are invested. In Europe alone, of the 20 million odd SMEs, 22,000 are backed by private equity (to the tune of €271 billion). So the question that one might ask is, what’s so special about these 22,000?

In a nutshell, private equity (PE) firms are an extremely fussy bunch. They can best be described as the talent scouts of finance. And just like any good scout – they do their homework. Significant time and money goes into assessing the potential of businesses, understanding their risks and how to mitigate them. Funds are only allocated to companies with that je ne sais quoi. These companies don’t have to be the crème de la crème, but private equity firms (in their never ending quest for value) will help them become the best in their field over a five to ten year period.

With that in mind, let’s talk about how an enterprise collaboration platform can help private equity fund managers do their homework and execute the deal with haste and happiness.

How can cloud collaboration help PE stakeholders?

A successful PE acquisition, at its core, is a collaboration of people. And there’s no shortage of interested parties. Typically there will be the management team and their lawyers, the private equity providers (pension funds, banks, insurance companies, corporates, individuals and government) and their lawyers, the bank and its lawyers, reporting accountants, environmental auditors and investment bankers.

Managing this many people can be a logistical nightmare. With enterprise collaboration software, all stakeholders can work in a secure online portal which is accessible anytime anywhere from multiple devices. On top of this is a host of social features that create a virtual office experience.

A live activity stream lets all participants know who’s doing what. People profiles give an overview of all deal participants. Individuals also have their own profiles so it’s easy to find the right people for the job. With so many firms involved it’s hard to distinguish between general and limited partners and their respective legal and finance teams.

Wikis and blogs are great way to communicate knowledge, ideas and news to groups or individuals. For example, the early stage business plan, information memorandum and equity term sheet could be brainstormed, drafted and iterated on a wiki (with a complete audit trail).

Make or break with due diligence

It’s safe to say that good due diligence defines risk, provides mitigative options and goes a long way toward securing a great ROI. In the case of PE there’s a lot to prepare and scrutinise, for example:

– Accountant’s reports on the target (business being bought)

– Actuarial reports on the funding of the target’s pension schemes

– Insurance reports on the insurance cover held by the target

– Environmental reports on the target’s property

– Market reports on the macro-economic conditions in the market in which the target operates

Enterprise collaboration software can help you carry out due diligence with speed and accuracy. Firstly is the spreadsheet/database module which uses pre-defined structured checklists to allow lawyers to quickly assess investment information.​ These can then instantly be generated into long-form reports ready for management perusal. Secondly, the virtual data room offers a secured and controlled environment for sensitive information to be shared (without being leaked). The Q&A functionality provides a seamless information-flow between buyers and sellers. Custom notifications, audit trails and analytics offer further streamlining in due diligence efforts.

Keep your private equity providers in the loop

Generally speaking, a typical PE venture will be in the form of a 10 year limited partnership. This means all the investors’ money is locked in, so this type of investment is pretty much illiquid. Having said that it’s still absolutely essential that the limited partners (pensions funds, wealthy individuals, and so on) are kept fully appraised of their investment. With that said, a good enterprise collaboration platform can be configured to provide a great investor relations tool (as I discussed in this blog post).

And there’s more…

No exposé on cloud collaboration is complete without at least a mention of two tantalising treats that serve to make any financial transaction go that little bit smoother. First up is secure file sharing and document management which allow for granular permissions, versioning, approval workflow, document metadata and more. Gone are the days of clumsy emails where important documents are lost in the wind and knowledge is siloed. Workflow tools such as tasks, which are ideal for project management, and events, which ensure missed meetings and deadlines are a thing of the past.

With competition at an all time high and PE valuations going through the roof, why not contact us or request a demo to see how HighQ’s range of transaction management solutions can help you obtain the best return on your private equity foray.