Private equity firms are known for their focus on investing in companies that can offer a return on their investment. In order to ensure that they are making a sound investment, these firms perform exhaustive due diligence in phases before making a buying decision. Mark Hauser, a partner of Hauser Private Equity, explains how private equity transactions are facilitated, as well as the three types of due diligence that the firms must undertake.
Mark Hauser notes that private equity firms want to see a company that has potential for growth. This could be in the form of new products or services, expanded markets, or improved efficiency. The key is that there needs to be a solid plan for how the firm will make money off of its investment.
He further adds that due diligence is essential for all parties involved in a private equity transaction. This includes the firm doing its research on the target company, as well as the target company putting together all the necessary information for potential buyers. Commercial due diligence looks at things like the market opportunity and competitive landscape, while financial due diligence focuses on things like financial statements and projections. Legal due diligence revolves around understanding any contractual obligations or risks associated with the deal.
Private equity firms also need to consider several factors before making an investment, including the potential for disruptive growth in a non-cyclical industry, the company’s competitive advantages, multiple avenues for growth, an impressive management team, and an ongoing research and development plan. By carefully evaluating all of these factors, private equity firms can make sound investments that will generate healthy returns.
Mark Hauser also notes that in order to make a profit, these firms need to carefully time their exits from these investments. The goal is to buy low and sell high, and this can only be done by knowing when to get out.