Balancing Due Diligence with Day-to-Day Operations – A Private Equity Challenge

How to balance Due Diligence with Day-to-Day Operations to maintain Enterprise Value – A Private Equity Challenge for investors

In the fast-paced world of private equity (PE), portfolio business teams often find themselves under immense pressure to balance operational performance with the demands of due diligence. Leadership teams must answer an array of detailed questions from prospective buyers, all while maintaining the core trading performance that directly impacts enterprise valuation. The challenge? If too much focus shifts to satisfying due diligence requirements, core business performance can suffer, ultimately diminishing the enterprise value—something no investor wants.

The Pressure on Leadership Teams

In a private equity-backed business, leadership teams are expected to wear multiple hats. On one hand, they are tasked with steering the company’s strategic growth, hitting revenue targets, and keeping operations running smoothly. On the other hand, they must also respond to the due diligence needs of prospective buyers or partners.

Due diligence is a critical phase in any M&A process, as buyers want to fully understand the company’s financial, operational, and strategic health before making an acquisition. However, it can be a massive distraction for senior management. Research by PwC found that up to 80% of companies experience delays or operational slowdowns during the due diligence phase, particularly when internal teams are pulled in multiple directions.

When leadership teams are stretched too thin, it’s not uncommon for trading performance to decline. This can directly erode enterprise value. For example, if profitability drops, revenue misses targets, or customer service suffers, potential buyers may re-evaluate the deal or demand a lower valuation. In the worst cases, businesses may even face a down-round in investment, impacting both current and future investors.

The Impact on Enterprise Value

Enterprise value (EV) is a core metric in the PE world, reflecting the overall worth of the business. It is influenced not only by market conditions but also by the company’s operational performance. When day-to-day business suffers due to a focus on satisfying due diligence requirements, the trading performance dips, and so does EV.

A study by Bain & Company revealed that up to 40% of potential M&A deals are abandoned due to issues uncovered in due diligence, often stemming from operational performance concerns. This underscores the high stakes involved when balancing diligence with running the business. For PE-backed firms, it’s a delicate balancing act—one where the focus must remain on delivering solid, consistent trading results, even as M&A processes heat up.

How How2-Change Consultancy Can Help

At How2-Change Consultancy, we specialize in supporting PE-backed businesses through complex M&A processes. With deep expertise in change management and value creation, our team helps to alleviate the pressure on leadership by managing due diligence processes efficiently, ensuring that operational performance remains strong. This support helps maintain, if not increase, the enterprise value, which is the ultimate goal for investors.

Our experienced consultants act as an extension of your management team, ensuring due diligence runs smoothly while allowing leadership to focus on what they do best—running the business. By providing pre-deal M&A support, we ensure that no stone is left unturned and that the business is prepared for a successful transition.

In summary, managing the tension between due diligence and Enterprise Value through day-to-day business operations is a significant challenge for leadership teams in PE-backed firms. But it doesn’t have to be a deal-breaker. With the right support, you can navigate these challenges, protect your enterprise value, and continue driving growth.

If your team is currently navigating a sale or M&A process and finding it hard to keep up with due diligence demands, reach out to How2-Change Consultancy. We’re here to help your business maintain its course and protect its value.

What’s next?

Did you know: Mismanaging Change is the number 1 reason CEOs lose their job

Would you like a copy of our Change Management Guide?

Further Useful Links

Would you like our free Change Management Guide?

Want to know more about our services and How we work?

How2-Change Reality Check®

Business Change Training

Business Change Coaching

Business Change Recruitment

Business Change Implementation

Here’s a link to our General FAQs page. We also have specific FAQs for each of our services.