Deal teams spend a lot of time and money sourcing, pursuing and winning an asset. While the thesis may center around a market, product, M&A, financial optimization or management team bet, value is not realized without go-to-market execution. Operations teams spend significant energy developing, gaining alignment on and driving execution of value creation plans. These plans often do not pay adequate attention to the team that is accountable for sourcing and converting revenue—marketing, sales and service.
During commercial diligence, deal teams should investigate whether the asset has (or can quickly build) the foundational marketing, sales and service capabilities to bring the deal thesis to life. Market work included in most diligence efforts delivers an understanding of market size, growth, attractiveness and competitive positioning. It does not, however, provide the deal team an understanding of the asset’s ability to deliver to the thesis. Investing in this level of commercial diligence increases bid confidence and aids in the identification of upside.
The following questions should be raised during commercial diligence:
As deal teams approach a win, operations teams and advisors must have a thoughtful commercial value creation plan in place.
With a limited hold window, it is imperative to quickly enact needed change and deploy investments. Leading private equity firms maintain a playbook of commercial optimization levers that deliver the greatest return during the hold.
Common plays include:
Leadership – install the right human resources to enact change and deploy capital. Quickly move out team members who do not bring requisite experience, energy and commitment to the value creation plan.
Pricing – develop and deploy strategy and discipline to win target markets and pull through value. Adapt packaging to facilitate new logo acquisition and life-time value capture. Install policies and procedures to avoid margin leaks.
Segmentation and Targeting – ensure management has a strong understanding of their ideal customer profile. Drive them to map markets at the account level. Push management to tune their marketing, messaging and value propositions to buyer needs and journeys. Align motions, channels, jobs and resource deployment to the markets where the asset has the right to win.
Channels – determine whether the business is using the most efficient and effective mix of direct and indirect routes to market. Challenge conventional thinking and push management to adopt a mix of online and offline modes of customer engagement.
Operations and Enablement – motivate management to invest in data, process and technology to effectively monitor and manage the business. Install measurement systems that monitor performance indicators such as lead volumes, pipeline fill and matriculation, and productivity. Make adequate investment to onboard, ramp-up and retain talent to mitigate risk of sub-optimal productivity and delays in value creation plan executions.
Deal teams invest too much to have a winning strategy undermined by poor commercial execution. A two- to three-week focused commercial deep dive during diligence delivers bid confidence and enables underwriting. A thoughtful commercial value creation plan leveraging winning plays puts marketing, sales and service teams on a path aligned to the deal thesis.
To learn more about how Alexander Group partners with private equity firms on commercial diligence and value creation, please contact an Alexander Group Private Equity practice lead.