At the October 2013 TMA Annual I spent a morning with a senior due diligence professional from a “Big 4” firm. He told me that his target clients were PE investors and lenders who were seeking better information on the quality of a potential investment company (or new debtor). At one point, I asked the due diligence professional about what role growth and top-line related issues played in most of his reports. His answer: “growth related issues usually are covered in an asterisk”.
How could this be? How can so many investors and their professionals not be focused on the growth (or contraction) prospects of a target investment? In today’s slow growth markets, it cannot be assumed that an investment company will grow in the post-acquisition period. It simply cannot be assumed that the asset values of the target company will remain stable post-acquisition if there are no plans at the target company for how it will maintain its top-line, much less grow it.
Not having clarity of the top-line prospects of a target investment may also be a lost opportunity for many PE firms. If as we have found with most of our clients, there is not a defined growth plan in place, it is highly likely that the potential of the company is not being fulfilled and that its ultimate value is not being maximized.
Growth planning is not easy, but it is also not hard to do. It can and should be a straight forward process in the due diligence of a deal for all PE firms, lenders, M&A professionals, and clients.
Billions in PE investments and billions in new, middle market loans should never put at risk due to an unread asterisk.