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The secret behind successful operational due diligence
Do you not think it surprising that presently 82% of UK mid-market investments fail to meet their organic growth plans?
For investors focusing on growth, a key priority is looking in detail at the target company’s ability to deliver their forecast and growth plans. This means that the due diligence process needs to focus more time and effort on the sales and marketing operations with the objective of giving the investor a clear view of the firm’s ability to meet their growth targets, to identify potential gaps and to highlight issues which may occur after the investment.
Sales and marketing capabilities and processes give significant insight into the company’s potential and it’s ability to execute the growth plan yet despite this fact, many UK investors still do not, as a matter of course, include the assessment of sales and marketing operations as a key component of their due diligence process.
Incorporating a sales and marketing assessment into the due diligence process and combined with commercial due diligence will give the investor a true 360 degree view of their potential investment’s ability to deliver their growth plan. As enhancing sales volumes is one of the key drivers of organic growth, it is crucial to assess the company’s current capabilities. These include:
- Analysing how and why the company wins and losses competitive deals
- Analysing the pipeline process to ensure its accuracy
- Analysing the market awareness plans and functions such as the website, search optimisation, social media and branding
- Mapping the lead generation processes and finding areas of improvement
- Understanding how the sales team close deals and manage clients
- Assessing the sales tools which create demand such as marketing collateral and sales presentations
- Analysing the usage of the sales CRM and marketing automation tools
This analysis is crucial in assessing the current execution capabilities and is vital part of the post deal operational planning process.
In our experience the two most common factors that contribute to inaccurate assessment of sales and marketing capabilities are:
- Most due diligence firms analyse the sales pipeline they receive and do not question the sales pipeline methodology. They tend to report on the output from management instead of challenging and testing the methodology.
- Sales and marketing processes are not challenged as there is a belief that a good management team knows how to execute the plan.
We believe that it makes sense for investors to employ experienced sales and marketing professionals to assess the target company’s sales and marketing capabilities as well as to to assess the true ability to execute their growth plan.
As an additional benefit, the assessment process frequently uncovers short term revenue opportunities and efficiency gains which have not been identified by the management team. This assessment is also an ideal basis for the post acquisition operational planning process and objective setting.
I trust you found this article of interest. Please do send me your feedback and ideas and of course I would be delighted if you will follow me on LinkedIn. In the meantime look forward to your comments.
About CappcoPartners – Founded in 2009 to provide sales and marketing services to private equity and venture capital backed companies who are struggling to meet their growth plans. We are staffed with experienced professionals who have successfully implemented change across all major industries. Since 2009 CappcoPartners has successfully increased revenue by £75m for our clients and have added £300k in Enterprise Value to their investors.