By the time the technical due diligence is requested, a private equity firm like ours has already decided the company is a good fit for its investment thesis, ran the initial numbers, talked extensively with the management team, and in partnership with management, formulated an investment management plan detailing how to grow the company over the next five years. Technical diligence is there to answer the simple question “Can we execute the investment management plan?”
Fit For Purpose
To answer that question, we approach from two angles. We first want to identify how much effort is involved in keeping the current platform or enterprise operational. Secondly, we need to determine what needs to be done to prepare for anticipated growth.
Just as a duck moves effortlessly across a pond, we need to go beneath the surface to see how rapidly the feet are moving to enable the serene movement. There is no judgment – every duck needs to paddle its feet as fast as it needs to get to where it is heading. Some ducks will not need to paddle as hard or as fast as others based on their unique characteristics, yet they all need to move.
Technology is our ducks' feet – the choice of platform, language, tools, servers etc. This all feeds into the larger question – deciding how the combination of all these tools has supported the scalability, security, and stability of the platform.
- Scalability
- There are two aspects to this – how the platform copes with load (both up and down) and how hard it is to build and maintain a team to support and grow the platform.
- Security
- How the platform protects its systems from unwanted access, and how safe it keeps the client's data.
- Stability
- When (not if) failure happens, what impact does this have, and how much effort is needed to maintain a level of availability or access.
This assessment is performed through a series of conversations with various subject matter experts, conducting deep dives to confirm observations (evaluating code snippets, data schemas, cloud configurations etc.).
It is during this deep dive process that teams can get defensive or intimidated by some decisions. This is a natural reaction but need not be the case. No team gets it perfect, not even the big boys (and I sight Google who forgot to pay their blogger.in domain name and lost it for a few days when it expired!)
We need to get a real sense of the state of the platform at this part of the process. Most things that are discovered at this stage can be fixed and addressed – it is just a question of time and investment.
We are also evaluating how open and honest the team is when we go through this due diligence. This is the management team we hope to be working with for many years going forward and we want to create a good rapport and comradery with them.
Building for the Future
After we have compiled our findings, we evaluate what needs to be done to ensure everything meets modern and best practice standards. We also determine what needs to be done to satisfy the growth goals for the company for the coming five years and beyond. We use these findings to establish a roadmap and budget for our private equity team to incorporate this into their broader investment management plan.
New Harbor’s goal is to lead our partnership with eyes open, as any problems or issues facing the company are now our problems to manage and solve together. Run towards the next technical diligence you find yourself in with wide open arms. Look at the management team and ask yourself if this is the group that you can work with to solve the next wave of unpredictable problems – because they will undoubtedly exist.
Private equity is more than just writing a check – it provides access to a team of experienced, seasoned experts whose goal is to make you successful, rolling up our sleeves to help you and your company grow to new heights.
Share this post with your networks via the buttons below!
Questions? Reach out to us at info@newharborcap.com today.
