5 Things to Look for in a Consultant for Due Diligence

December 21, 2023 | by Keith Yeater

Imagine this scenario: your private equity firm identifies a promising acquisition target. The company appears well-run, with a stellar reputation and potential for operational improvement. Eager to seize the opportunity, your firm moves forward without in-depth operational due diligence. However, once the deal is sealed, unforeseen challenges emerge—working capital issues, quality challenges, operational vulnerabilities, or a laundry list of other issues that weren’t immediately apparent.

It’s a bad situation. But the solution is two-fold.

First, to navigate the complexities and minimize risk, private equity firms are turning to operational due diligence, a comprehensive evaluation that unveils hidden opportunities and threats. But the second part of the equation follows from the question: how do you ensure that this due diligence is executed effectively? 

The journey from potential to prosperity requires more than recognizing the value of due diligence—it demands a consultative approach.

In other words, you need a partner.

A Clear View of Reality

Operational due diligence is a holistic evaluation of a target company’s operations, encompassing everything from people and processes to technology and compliance. The benefits are too many to list out here, but include:

• Mitigate your risk: Operational due diligence can help identify and mitigate potential risks, such as compliance issues or operational inefficiencies.
• Improve your decision-making: By understanding the target company’s operations in detail, private equity firms can make better investment decisions.
• Create more value: Due diligence can help identify opportunities to improve the target company’s operations and create value.
• More negotiating power: A detailed understanding of the target company’s operations can give private equity firms a stronger negotiating position when acquiring the company.

The Role of Consultants in Operational Due Diligence

Some consultants bring a unique blend of expertise, objectivity, and industry insight to the operational due diligence process. The best ones act as trusted guides, leading private equity firms through a thorough examination of a target company’s operations. Here are a few of the tasks they may undertake during operational due diligence:

• Interviews and assessments: Consultants engage with management and employees to gain an intimate understanding of the company’s operations, culture, and challenges.
• Financial review: Consultants delve into financial statements and documents to uncover underlying financial health and potential risks.
• Process analysis: A comprehensive analysis of operations and processes uncover operational inefficiencies, vulnerabilities, and opportunities for improvement.
• Risk and opportunity identification: Consultants identify potential risks and opportunities that might have remained hidden in a superficial assessment.
• Recommendations: Based on their findings, consultants make informed recommendations for improvement and value creation. No consultant worth their salt will ever try to sell you something you don’t need, but the good ones will give you recommendations you can follow–or not follow–based on the facts of the situation.

Why the Right Partner Matters

Choosing the right consultant partner is pivotal in achieving successful operational due diligence. At CBS, we stand out for several reasons:

• Nimbleness: The private equity landscape demands agility. Our ability to swiftly conduct due diligence ensures you’re equipped with timely insights for confident decision-making.
• Industry expertise: Our team comprises experts across various industries, ensuring a nuanced understanding of specific challenges and opportunities.
• Broad to narrow insight: We go beyond numbers, embracing a comprehensive approach that uncovers hidden truths, enhancing the quality of due diligence.
• Cost-effectiveness: While major consulting firms can be costly, we provide high-quality due diligence at a fraction of the price. (Our due diligence services, for example, tend to more than pay for themselves.)
• Partner mindset: We align with your objectives, working collaboratively to craft strategies that maximize value.
• Good People: We’re enjoyable to work with and we have your best interest at heart throughout the process, no matter what.

The Bottom Line

Because things move quickly in the current market and there’s always the urge to seize on potential opportunities that might, at least from the outside, look like a great acquisition, going alone can be tempting.

But for all the reasons listed above–and more–the right partnership can be the difference between missteps and triumphs. 

If you’re preparing to acquire a company or if you simply want to chat, your next step should be a call or message to us at CBS. It’s the right move because if we’re a great fit, then operational due diligence becomes a transformative journey toward strong, smart investments. (One that, by the way, often pays for itself through what a knowledgeable, industry-expert, objective partner can discover during the process, we might add.) And even if we’re not–and we’ll let you know if another firm might better suit your needs–it can be incredibly helpful to talk through the issues, challenges, goals, and opportunities you’re facing. Please reach out by clicking the link below. You have nothing to lose, and–as you can see from the list above–everything to gain!