PRIVATE EQUITY
OVERVIEW
Investment teams face daily headwinds simply to find a potential deal: from developing investment hypotheses, to meeting business owners, to reading pitch decks and screening - the amount of work required seems endless. Particularly for funds that have no or few Operating Partners, the idea of driving substantive value after this process may feel daunting. DPO&Co has a relative competitive advantage over the investment team when it comes to conducting due diligence and creating operational results. Our track record and candor will ensure you partner with a firm that will tell you how it is, not what you want to hear. We will also roll up our sleeves to work alongside managers to develop strategies that deliver on investment promises and potentially drive value to other portfolio companies. As a result, the investment team can focus on its comparative competitive advantage.
CASE EXAMPLES
6-Week Diligence: Ran PE diligence assessing the Ag equipment market, target company’s competitive position and organic / acquisition growth levers, ultimately advising against investing
Situation
- Client was a Japanese Private Equity firm looking for stable investment in the U.S.
- The investment team did significant research and was very confident in a deal to purchase the owner of 11 agricultural equipment dealers in the Midwest
- At first glance, the investment appeared very stable in an industry with inelastic demand
- However, there were many unknown decision factors that drive purchasing behavior of equipment, such as crop prices, subsidies and brand loyalty
- The client hired a consultant for a “rubber stamp” of approval, but indications were that the investment could be very untimely
Approach
- Conducted primary research to determine major drivers of consumer purchases
- Trended crop prices and correlated to 60 years of equipment sales
- Interviewed farmers and ag equipment executives to confirm findings and develop customer segmentations
- Determined profitability for large, medium, small tractors and combines and segmented products against typical customers
- Highlighted profit concentration in “mega-farmers” with >5k acres
- Hypothesized that drivers of buying behavior were unfavorable
- Elucidated costs of carrying excess inventory in downturn
- Recommended PE firm avoid purchase based on facts
Impact/Results
- Members of the deal team were frustrated, but could not argue with facts
- Company did not make purchase and avoided purchasing at the commodity peak
- Avoided participating in NA equipment market that saw 29% revenue decline
- Sold additional projects based on honesty, analytical rigor and cross-cultural sensitivity