Services for Private Equity Firms Adding Value During Due Diligence or Post-Closing
Private Equity firms do an excellent job analyzing potential investments and current portfolio companies. However, most do not possess the “Shop Floor” operations expertise required to evaluate problems and determine the savings and efficiency improvements available at a potential investment or current holding. In the increasingly competitive world of Private Equity – with more bidders chasing transactions every day – DB&A can add significant value during due diligence or post-closing.
With over 800 completed projects across multiple industries, DB&A provides the extensive operational expertise required to uncover dramatic savings opportunities. Some of the largest buyout firms in the world have capitalized on the DB&A expertise. Numerous middle-market Private Equity firms have benefited as well.
DB&A’s two-week assessment process quickly allows companies to determine the true savings potential and operational issues within their business. During the assessment, findings are based on improvements that do not require additional investments in technology or capital expenditures. By working directly with the management teams, the assessment process is designed to share risk with clients by allowing a mid-point evaluation at the end of the first week. If DB&A is not able to show significantly more savings than the executive management team has previously identified, or cannot dramatically expedite the rate of improvement, the client can choose to discontinue the assessment on the first Friday at no cost.
If management agrees to move into the second week of the assessment, DB&A will develop a customized approach to capture the savings identified in week one. If a client moves into the second week, the fee generally ranges from $50,000-$90,000. The analysis is non-disruptive to company operations and most companies actually see a significant increase in productivity during the process. Thus, the analysis process is a very low-risk proposition for the financial sponsor and the portfolio company, as DB&A absorbs all financial cost for the first week while the client learns more about the organization.
One of DB&A’s founding principles is the guarantee of an annualized ROI and monthly cash flow for most engagements, typically providing an annualized cash-on-cash ROI guarantee of between 2:1 and 3:1. Many clients see a “cash neutral” position mid-way through an engagement due to DB&A’s ability to exceed the guaranteed ROI. This rapid rate of return equates to IRRs in excess of 150% and, since the guaranteed savings are traceable to the bottom line, the benefit nets itself in significant increases in valuation multiples upon exit.
Since its inception in 1987, over 70% of DB&A’s work has come from additional projects with clients who have used the company’s services in the past. This “repeat work” is due largely to the ability to exceed cash flow guarantees and provide sustainable improvements to an organization.