There is unfortunately no way to sugar coat this: due diligence will cost. It will cost time, money and frankly, if performed badly, could cost you the investment opportunity. Of course, the potential costs of not doing these checks can, for the investor, be much worse. So, acknowledging what is at stake, isn’t it essential that the most is made of this data that has been collected at significant expense? Whitecap Director, Luke Freeman, and Associates, Neil Guilder and David Powell, share their views on this topic.

Fortunately, we think there is a better way, that’s both more cost effective and produces more useful outputs.

We have always found it peculiar that, whilst an investor will often complete commercial, financial and management team due diligence it is very rare that this is conducted in a truly joined up way; either in terms of data gathering or, even more sadly, data analysis & insight generation. In our years working in the industry we have only rarely been introduced to another due diligence provider in a professional capacity or encouraged to actively swap notes as part of the process.

Without wishing to sound evangelical, it is our belief that the benefits of openly sharing our hard-won due diligence data with our due diligence colleagues simply can’t be overstated. So, to this end let’s look at the top 3 benefits of a joined-up, commercial + financial + management, approach as we see it:

  1. Reduced burden on Management
    We would not like to put a value on the goodwill lost when your busy CEO finds him or herself describing the same set of strategic imperatives for the third time. One thing we have always found troubling is just how far a business can find itself taking its foot off the gas whilst fundraising. Surviving fundraising becomes the number one strategic priority exactly at a time when their ability to deliver their business plan is being scrutinised. Minimise deal distraction, maximise business performance.
  1. Better advice for Investment Directors
    Let’s describe the current situation: three experts collecting three sets of data about one business, analysing each in isolation and providing three separate summary reports to an investment director who is then required to swiftly understand the interconnectedness of this summary data in order to obtain a holistic view of the potential for commercial success. Oh, and there may well be £30m at stake. Time and time again we have encountered situations where our analysis would have been sharper and our understanding of the organisation deeper, had we been provided access to a wider data set. For example, commercial due diligence identifies a significant and obvious growth potential that appears to be un-exploited. Management team due diligence identifies a systemic process that ties the CEO emotionally to a hidden model of prudent growth. Financial due diligence is concerned about the rudimentary financial methodology. Three issues or only one? Let’s get the experts talking, collaborating. (We would even accept arguing as a starting point).
  1. More Actionable Recommendations
    Imagine what a single set of cohesive recommendations that cover all angles of due diligence would look like. Sharper insights, zero conflicts, entirely more actionable with a clear linkage between diagnosis and solutions. A clear roadmap describing the interdependence between external, internal and behavioural drivers of future performance. Perhaps best described as a revolution in terms of business analysis.

Now there is also a fourth obvious benefit, cost (and therefore fee) efficiency. Where data is collected only once and shared between each discipline in a robust and collaborative way. Although, in order to really take advantage of this and all of the other compelling advantages, what you, enlightened investor, would need to find is a due diligence provider looking to redefine the terms of what is offered and bring all of these disciplines into one house. The ability to adjust scope, scale and fee size now becomes a pragmatic tool rather than a compromise and the output more meaningful, direct and clear.

If these issues resonate, we are keen to hear from you, as well as your own experiences in aligned due diligence. Please post your thoughts and tag ‘Whitecap Consulting’ (LinkedIn) or @Whitecapconsult (Twitter), or send us an email to share your thoughts:

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Hopefully you’ve found this article useful. If you feel that your strategy development, due diligence and strategy implementation process would benefit from independent review and challenge, please get in touch.

Established in 2012, Whitecap Consulting is a regional strategy consultancy headquartered in Leeds, with offices in Manchester, Milton Keynes, Bristol and Newcastle. We typically work with boards, executives and investors of predominantly mid-sized organisations with a turnover of c£10m-£300m, helping clients analyse, develop and implement growth strategies. Also, we work with clients across a range of sectors including Financial Services, Technology, FinTech, Outsourcing, Consumer and Retail, Property, Healthcare, Higher Education, Manufacturing and Professional Services, including Corporate Finance and PE.