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Published by: Amanda Cifone
Published on:

How Private Equity Firms Can Use Their Relationship Capital for Better Due Diligence

Published by: Amanda Cifone
Published on:

Effective due diligence is becoming more important to the success of private equity firms.

According to Bain & Company’s February 2020 Global Private Equity Report, the most effective response to increasingly stiff industry competition and worsening macro conditions is, “to get smarter about choosing targets, developing sector insights and doing due diligence.”

And that was before the full effects of the COVID-19 pandemic were realized.

As a report by the consulting firm Deloitte points out, the scope of due diligence for many PE firms has changed significantly given the effects of the pandemic:

“Before the pandemic, due diligence was often narrowly focused on recent financial performance. Now, we are seeing an unprecedented level of scope and detail with diligence assignments, as funds work hard to distinguish between underlying business fundamentals and COVID-19 impact.”

Private equity firms are now using more commercial and operational due diligence to understand how the pandemic has reshaped markets, channels, customer fundamentals, the competitive landscape, and other factors. At the same time, many on-site meetings and visits to potential target companies are no longer possible because of quarantine policies and travel restrictions related to the COVID-19 pandemic.

So, what can PE firms do to ensure that their due diligence remains effective in this environment?

This is where RelSci can help.

In this blog, we’ll discuss how the RelSci platform, along with our new product Radar, are uniquely positioned to help PE firms improve their due diligence process in two ways:

  1. Conduct more accurate and objective due diligence on target companies by leveraging more of your firm’s network.
  2. Save time and increase efficiencies during due diligence by automating otherwise manual processes and tasks.

Use Your Firm’s Network to Uncover Additional Insights About a Potential Investment

As a PE firm, when you’re considering investing in a given company, you’re faced with a range of questions during the due diligence process:

What is the performance of the Executive Team or Management? What is the historical and projected growth of the market? What are the key trends in the market that are beneficial (or disadvantageous) to the company? What is an objective view of the competitive landscape? What is the regulatory environment like and how is it likely to change in the coming years?

And many other questions.

One source of answers to these questions is your firm’s own Research and Due Diligence teams. Other sources include advisors, consultants, and management and staff at the target company, among others.

But an overlooked source of insight is your PE firm’s broader personal and professional network.

For example, someone who worked with the CEO at a previous company. Or an industry expert who went to business school with your firm’s Managing Partner.

Why don’t PE firms take full advantage of their relationship capital during the due diligence process?

One reason is that many firms simply don’t know the full universe and power of their network of contacts, let alone the details of all the interactions with those contacts.

This is where RelSci comes in.

Instead of mistakenly approaching someone who is no longer as relevant to your person of interest, try searching through Radar’s interaction insights in combination with Path Finder search queries. This way, you can find not only someone who is connected to your person of interest, but somebody who has been connected recently and still has a warm relationship there!

Make Using Your Firm’s Relationship Capital as Efficient as Possible

Time-consuming manual data entry is another reason why many PE firms don’t maximize the use of their networks.

Not only are organizations struggling to keep an accurate ledger of their external interactions, but they struggle to keep track of all of their 2nd and 3rd degree connections.

RelSci’s newest tool Radar is developed for specific integration with your inbox and CRM system. Radar can be installed to work alongside your Outlook Exchange application and Salesforce CRM system to provide crucial data automation while still delivering the unparalleled relationship intelligence that you are used to from Relationship Science.

Radar will help you guarantee that your relationships in RelSci are up-to-date. This affects everything from your Path Finder searches to your available interaction insights, and it will even strengthen the accumulation of your 360° News Alerts.

In an industry like Private Equity where relationship capital is paramount to learning pertinent information and acting on it, use Radar to stay on top of everything you need to be focused on.

Learn more about RelSci and Radar for Private Equity 

RelSci is the most effective tool for relationship-driven business development.

If you would like to learn more about how to use RelSci and Radar to better leverage your PE firm’s relationship capital, we’d love to hear from you.

Request a demo to speak with one of our sales representatives.