Private Equity Case Study

Commercial Diligence Finds Hidden Value

Investing in Value

Will our investment pay off? That is the #1 question on the minds of today’s private equity leaders.

With inflation at record levels and an uncertain business environment, private equity firms are more deeply evaluating their investments. Management teams are being asked to provide additional clarity on where growth will come from and how they will deliver it.

A leading private equity firm engaged Alexander Group on a commercial diligence effort for an international software provider. The diligence aimed to gauge whether marketing, sales and post-sales organizations were set up effectively to deliver management’s ambitious growth plan.

Project Approach

A commercial diligence approach includes a thorough investigation of the target’s go-to-market model, providing clarity into the health and productivity of the current model. It confirms growth opportunity and details the investment and change needed to execute.

This commercial diligence effort focused on answering deal team questions around commercial talent, productivity and the ability to win in adjacent markets while testing the viability of management’s growth plans.

Phase One: 1 week

Data collection and analysis

Alexander Group was provided access to the data room and worked with the deal team to submit supplementary data requests (e.g., pipeline data, win-loss, marketing mix, and others). The team conducted a suite of analytics and benchmarking to gauge the effectiveness of the marketing, sales, and post-sales organization. The team completed outside-in research such as mystery shopping the demo process and evaluating the experience of existing commercial team members. Alexander Group participated in a series of management meetings to confirm the current state and test hypotheses.

Revenue growth benchmarking

Alexander Group has one of the largest proprietary databases of revenue and commercial productivity benchmarks. Available data was used to calculate the targets metrics and a custom benchmark was developed.

Marketing audit

Alexander Group assessed the target company’s website, social media and marketing materials to evaluate its success at reaching desired customer audiences and its performance against competitor marketing efforts.

Phase Two: 1 week

Go-to-market assessment

Alexander Group evaluated the marketing, sales, and post-sales organization based on its ability to stand up to leading practices, benchmarks, elements of the deal thesis, and managements growth plan. The team provided initial answers to diligence questions and a point of view on gaps and likely investments.

Phase Three: 1 week

Recommendations, business case, and value creation plan

The diligence concluded with an in-depth report delivering detailed answers to diligence questions, recommendations on changes and investments to the go-to-market model, and a commercial value creation plan. The report was accompanied by a financial business case demonstrating the cost and expected financial impact of change. The deliverable was socialized with the management team to gain alignment ahead of close. Additionally, Alexander Group worked with the deal to deliver modeling inputs and prepare investment committee materials.

Note: Alexander Group is flexible to adjust scope and timeline based on deal stage progression.

Key Findings

Alexander Group’s review revealed that the current model would miss its growth plan by more than 15% unless it implemented elements of the commercial value creation plan.

There was not sufficient evidence to suggest the business would accelerate beyond historic growth rates of 20%. Seller productivity was 67% of benchmark and there was not sufficient pipeline to deliver ambitious near-term goals. The commercial value creation plan featured accelerated hiring, optimizing lead generation motions and investments in seller enablement.

Historic growth rates

Seller productivity to benchmark

Project Recommendations & Outcomes

Alexander Group’s comprehensive commercial diligence assessment of the target company resulted in the following recommendations.

Coverage

To improve win rates, hunters (Account Executives) needed to be aligned by industry bringing use case depth to customer interactions. Farmers (Account Managers) needed to be held accountable for cross-selling (expansion) in addition to retention. Additional headcount was needed to perform to the near-term bookings plan.

Global Expansion

Alexander Group recommended a prioritized and sequenced set of headcount and infrastructure investments in select regions where the company had the right to win in the near-term.

Marketing

The target company would need to differentiate marketing motions for enterprise and mid-market segments. Moving up market was a fundamental component to the deal thesis however the business had not demonstrated success systematically driving awareness and demand among the enterprise segment.

Pricing

The analysis pointed to implementing inflationary price increases and validating disruptive pricing changes where applicable.

Alexander Group built these recommendations into a business case that projected an incremental $7.4 million recurring revenue for 2023 after a $2 million investment. For 2024, recurring revenue was projected to increase to $17.4 million after another $2 million investment.

These recommendations mitigated risks identified with the growth plan and the commercial value creation plan served as a platform to align the management team with new ownership’s expectations.

Year 1 ROI

(incremental revenue / incremental investment)

Year 2 ROI

(incremental revenue / incremental investment)

Finding Hidden Value

Traditional diligence efforts and value creation plans often overlook the hidden value within the commercial organization. More often they overlook the go-to-market investments and changes needed to practically pull through the value.

Alexander Group commercial diligence efforts find hidden value at the earliest stages of the investment. They arm deal and operating teams with practical execution plans enabling management teams to act early in the hold.

For more information about finding the hidden value in your organization, contact Alexander Group.

About Alexander Group

Alexander Group understands your revenue growth challenges. Since 1985, we’ve served more than 3,000 companies across the globe. This experience gives us not only a highly sophisticated set of best practices to grow revenue—we also have a rich repository of unique industry data that informs all our recommendations. Aligning product, marketing, operations and finance efforts behind a successful sales organization takes insight and hard work. We help the world’s leading organizations build the right revenue vision, transform their organizations and deliver results.