For private equity funds, there are three things that matter the most:
- Sourcing deals
- Driving portfolio value during the holding period, and
- Maximising value on portfolio exits.
Doing these three things well and at speed is what matters; rest is a distraction. In this blog we will focus on the practical steps private equity funds and their portfolios can take to maximise value on exits.
Overview
Given the complexity of private equity investment structures, portfolio exits are not easy. They can get doubly difficult if the business being sold is not transaction ready. Here are some practical ways in which a private equity portfolio can stay transaction ready:
Maintain a deal data room during the holding period
It can often take months getting a deal data room ready; significant management time and legal costs are spent in the process. The better practice is to maintain a deal data room during the holding period. This can be separate from a company’s day-to-day operating data room and structured for transaction purposes.
By maintaining a deal data room during the holding period, Private Equity Portfolios can save 7-8 weeks in a transaction process and significant costs.
Ownership records and capital tables.
Make sure that you have a clean and up to date capital table for the entity being sold. In addition, ensure legal and beneficial ownership records and share registers exist for the entity being sold and for all the target group entities. This may sound obvious, but we see legal Due Diligence uncover issues with respect to ownership records time and again. This can result in unnecessary delays and red flags.
A Cap table management module that links your commercial cap table, legal share registers, and all the underlying documents is the best way to go about this.
Corporate Governance
Ensure your corporate housekeeping is in order. For all the entities in the target group, maintain full records for the board of directors, board minutes and resolutions, and other corporate documents (e.g. articles and bylaws, shareholder resolutions, charges etc).
Private equity portfolios contain multiple legal entities, often spread across many countries. It is good practice to have a system that helps track and manage legal entity details and maintain a group structure chart that is kept up to date showing the ownership relationship for all the group entities.
Use a legal entity management suite that helps manage legal entities and corporate governance.
Compliance
During the exit process, the buy side advisors are going to diligence the compliance position of the group that covers all areas – tax, regulatory, legal. We often see diligence findings owing to compliance lapses that go to value.
Use technology to digitize compliance calendars and compliance tracking. This will ensure all legal entities in the group are compliant during the holding period and preserve value on exit.
One platform to do it all.
DealsPlus provides one platform to manage private equity investment structures and help keep them transaction ready. Check out our product video here.