Politicians and legislators have one thing in common that we often overlook because of their broad range of political viewpoints. Nearly all of them actively seek advice to make the best decision possible for their constituents. Why? Simple, they recognize that while they may be good leaders, they do not know everything. How could they? They look to the experts to get the answers they need and to lead decision making.
The same holds true for businesses — smart leaders, including those seeking private equity consulting, seek advice for the same reasons.
Former Prime Minister of the United Kingdom, David Cameron, explains the need for sound advice perfectly: “My view is, the most important thing as prime minister is trying to make the right judgments. To make good judgments, you need good advice; you need good principles, and you need a clear head, and you need to have a sense of equilibrium.”
PE firms need advice for the same reasons as politicians — to expand their thinking, get out of the weeds and build their circle of trusted advisors. In private equity, consulting experts offer services that are designed to lead decisions and ultimately make your job as an investor easier.
Five Ways Private Equity Consulting can Help
Get to yes or no faster
In the due diligence phase, the right advisor will change how PE views an investment, ultimately delivering the answers and confidence needed to evaluate a deal.
In a recent engagement, we had a client in the IOI phase of an investment in a marketing workflow collaboration based software. Our client wanted to know a number of things, including how the creative process works without the software and whether this software offered something different from other options. To get the answer they needed, we connected them with experts that understood and used similar products in their day-to-day life. In the end, the answers helped them decide to pass on the opportunity.
Coming to an informed decision often requires the expertise of someone outside the team. It requires gathering insight beyond quantified data in a market research report, and private equity consulting will rapidly vet, prepare and introduce you to both subject-matter experts and industry leaders.
Provide an easier assessment of market patterns
When evaluating market trends for new investments in private equity, firms are facing increasingly challenging circumstances and tighter decision-making timeframes. A private equity consultant with experience and in-depth knowledge in a market unfamiliar to your firm will help refine a sector thesis and move quickly, with conviction, when the right opportunity comes along.
A PE client of ours wanted to make its first investment in the rapidly growing and ever-evolving drone technology. While the opportunity excited the firm, they didn’t have a firm grasp on the market, so they turned to consultants who could help them understand market potential and pitfalls. The conversations they had with experts in the drone industry helped them identify an opportunity in drone racing and led them to pursue the purchase of a key portfolio company more aggressively.
A sector thesis sprint, guided by the right industry leader with broad market and operational knowledge, helps to assess market patterns, confirm business assumptions and identify an investment strategy within clearly defined industry sweet spots. They can help your firm position itself as a prepared (and preferred) buyer in the eyes of potential sellers.
Build a refined market strategy and advance their portfolio growth
Post-transaction, PE portfolio managers’ number one objective is to drive sustainable growth over the life of the investment. To do so, they rely on the board and management team at portfolio companies to steer the company’s direction.
Yet private equity portfolio companies don’t always have the necessary in-house resources to define the appropriate strategic initiatives or even course corrections. By turning to a private equity consulting firm, portco leadership teams gain access to both industry leaders and functional subject matter experts who help refine strategy and guide initiatives like customer insight, new end markets and regulatory concerns.
Often, when sales are plummeting, it’s hard to see the reason when you’re in the weeds. For example, when a client found their sales dropping, they turned to us to help find an expert who could advise market potential and ultimately deliver a direction for their sales team. By connecting with the right experts, they found a path to new potential customers, a sales strategy, and a long-term relationship with a game-changing advisor.
Expert advisors help management teams solve problems and seize opportunities, with the goal to increase the return on investment.
Build a stronger board/management team
Often the board or management team portfolio companies start with is not the same team they need as the company matures. Experienced outside directors on the portfolio company boards enrich market analyses, provide operational expertise and accelerate value creation. Finding the appropriate outside director can be tricky, and a good private equity consulting firm will point you in the right direction.
For example, we have a private equity client who holds an investment in a cardiovascular medical device company. They needed a new board member to help them navigate FDA and CE regulatory processes as quickly as possible. We connected them with our high-quality candidates, one of whom ended up joining the board.
Finding the right person quickly is tough — especially when looking for candidates outside your network. A PE consulting firm can help identify uniquely tailored experts who compliment the strategic direction and pair well with existing board and management teams.
Help build relationships/contacts you need to get answers you want when you need them
In PE, it isn’t always possible to predict the opportunities, questions or needs that will arise. Knowing that the answers needed today are almost always different from those you’ll need tomorrow, it’s best to build relationships with advisors before you need them.
By tapping into the power of private equity consulting early, you’ll build a diverse stable of expert consultants. This should be thought of as an ongoing process, always looking toward nurturing new relationships to help you get the answers when you need them.
Invest or Walk
Adopt a sector thesis approach to thrive in technology dealmaking