Commercial Due Diligence in Private Equity

Commercial Due Diligence in Private Equity

November 8, 2016
November 8, 2016

Share

Private equity investing has grown significantly in the last twenty years, as have the consulting practices that serve private equity. When Stax started working with PE funds in 1997, there were about four to five leveraged buyouts closed per week in the US. According to Pitchbook, that average today is more like 20 LBOs, and another ten or so private equity transactions of other types per week. At a median LBO deal size of $100M+, the pace of private equity investment is strong, if down somewhat from its recent peak.


Private equity has matured with strong historical growth attracting significant capital and leading to greater efficiency and competition for deals. Consistent high returns are more difficult to achieve. Even so, fundraising has remained strong, with over $2.5T raised in US PE funds over the last ten years — from both new and traditional sources of capital. Consultants serving PE have thrived in this environment, particularly the strategy firms that address commercial due diligence and portfolio company profit growth.


In today’s environment, what is consulting worth? What is the value of commercial due diligence from a strategy consulting firm? Are consultants worth less or more to private equity investors than they were ten or fifteen years ago? Under what circumstances is consulting worth more, or worth less? At Stax, we can provide quantitative answers to such questions.


There are established frameworks for understanding the value of information. Investing is a probabilistic endeavor, and consulting information can be evaluated in this context. Using this approach, we can quantify the value of consulting information in private equity deals.


There are two primary ways for a strategy consultant to increase returns for investors:


1) Help the investor to make better investment decisions.

2) Improve portfolio company performance post-investment.


We look at the investment decision portion and specifically at the commercial due diligence offering. In commercial due diligence, consultants vet the market and competitive position of a target, the likelihood of achieving management projections for profitable growth and the risks and potential accelerators to that growth. Here we consider a simple investment scenario with a target company with $15M EBITDA, where we assume no multiple expansion, a set of simple assumptions around the structure of a deal with three potential outcomes and probabilities associated with each.

Read More

Stax Named Finalist for 2025 Real Deals Sustainable Investment Awards
July 1, 2025
Stax has been named a finalist in the 2025 Real Deals Sustainable Investment Awards, recognized in the category of Due Diligence Provider of the Year. Click here to learn about the award.
Stax Sector Spotlight: Food & Beverage
June 26, 2025
F&B investor focus is shifting—from trend-driven categories to value-added processing and resilient retail channels. In 2025, stability is the new premium. Click here to read more.
Deceptively Simple, Deeply Strategic: Why the B2B Events Industry Demands a Nuanced DD Lens
By Florent Jarry June 26, 2025
Florent Jarry discusses how the real value in B2B events lies beneath the surface. Learn how investor success hinges on format mix, data maturity, and alignment with management ambition.
Stax Provides Sell-side Support to Peak Rock Capital on its Sale of Amtech to Vista Equity Partners​
June 25, 2025
Stax congratulates Peak Rock Capital on its recent sale of Amtech Software, a leading provider of industrial software to the global packaging industry, to Vista Equity Partners. Read more here.
Stax Provides Sell-Side Support to ProfitSolv on its Investment co-led by FTV Capital and Lightyear
June 25, 2025
Stax supported ProfitSolv, a practice management software & payments provider, on its recent investment co-led by FTV Capital and existing investor Lightyear Capital. Read more.
Crossing Borders, Building Value: Our UK Growth Story
By Jayson Traxler June 25, 2025
Stax CEO, Jayson Traxler, reflects on joining BAB’s Transatlantic Growth Roundtable, highlighting global growth insights and Stax’s momentum in UK expansion. Click to read more.
Show More