Transaction Readiness for private equity backed portfolio companies

Most private equity investors over the past 12 months or so have prioritised looking after their portfolio of investments, which, to some degree or another, have been impacted by recent economic and geo-political volatility.

After a run of exit activity in the first half of 2022, the market has cooled to some extent. Private equity M&A processes are lengthening, and a successful or failed exit process can easily take 12 months. These processes are also highly volatile and so are not as likely to deliver a sale as two-three years ago. However, sales processes are still being instigated and transaction continues to exist, albeit not to the same degree as before.  

Focus on keeping  portfolio companies transaction ready

Private equity investors can preserve and even create value by ensuring that their portfolios are ‘transaction ready’. Transaction readiness can translate to three measurable benefits for private equity portfolios:

  • Reduced transaction costs at exit.
  • Shorter due diligence cycles.
  • Prevent material due diligence findings that go to value.

An area ripe for disruption in improving portfolio ‘transaction readiness’

In this context, an area that is ripe for disruption and value creation is the current inefficiencies in private equity M&A and due diligence processes. In our experience, the following inefficiencies are common during portfolio exit processes:

  • Portfolio management teams (along with their advisors) spend months getting ready for legal, tax, and financial due diligence. A lot of this time is incurred in collating information and mapping all the historic events during the portfolio holding period.
  • Gaps in information and due diligence findings are often identified during the transaction process, when it can be too late and costly.
  • Data needed for key exit deliverables – SPAs, legal entity data for companies within the transaction perimeter, shareholding information, exit funds flow – takes a lot of time and cost to produce.

Complex and fragmented investment structure data causes inefficiencies

In our experience, the commonly seen inefficiencies discussed above arise because private equity investment structures are inefficiently managed. This is due to complexity and lack of standardised systems and processes.

  • Private equity investment structures are complex, with each portfolio company having its unique holding and capital structure.
  • Holding and operating structures often consist of complex cross-border legal entity chains.
  • Portfolio ownership is highly structured with equity plans consisting of multiple classes of equity and debt instruments with varying terms and rights that are held by the fund entities, portfolio management, and any co-investors.
  • Portfolio structures change through the holding period due to events at the portfolio level: add-on acquisitions, reorganisations, and capital structure changes.
  • The data that tracks investment structures are managed by cross-functional teams – financial, legal, tax, portfolio – in a fragmented and unconnected way. This creates gaps, mismatches, and lack of a single source of truth.  

Digitisation creates ‘transaction readiness’

At DealsPlus we have digitised hundreds of investment structures for private equity funds and delivering immediate value by:

  • Creating a single source of truth for investment structure data that empowers cross functional teams (finance, tax, legal, compliance), external advisors, and portfolio teams to have investment structure information at their fingertips.
  • DealsPlus’ intelligent workflows enable easy administration and validation of investment structures throughout their life. Our role-based access controls mean that structures can be managed collaboratively between fund, external advisor, and portfolio teams. This ensures risks are minimised during the holding period.

The result is speed, accuracy, and value during portfolio exists 

  • DealsPlus acts as a ready-made digital fact book for legal, tax, and financial due diligence, saving months of time and cost during an exit process.
  • By being an intelligent system of record during the holding period, DealsPlus minimises the risk of material due diligence findings that go to value on exits.
  • DealsPlus provides all the data needed for key exit deliverables – SPAs, legal entity data for companies within the transaction perimeter, shareholding information, and exit funds flow.

With DealsPlus, private equity investors benefit from reduced transaction costs, shorter due diligence cycles, and preserve portfolio value on exit.