How does your firm do diligence?
Question in the title. I came from MBB and went to a MF PE shop after and enjoyed my time. We largely outsourced commercial due diligence to Bain/Mck who would do a high volume of the expert calls, secondary research and synthesis. We would overlay our own insights and I could be heads down on the model.
Recently moved to a new shop and I hate it. We do all the diligence internally. My own calls, surveys and secondary. I miss using MBB. I've only worked at two PE shops - what is the norm for diligence? Should I consider moving to HFs in hopes to do more high level diligence?
Ignore the throwaway title
Appreciate any insights - thanks!
If you come from mbb - shouldn’t you be equipped with the skills to do so? If not and you only enjoyed the modeling, I would highly recommend hedge fund where models / insights are important
lol you can’t escape the need to do market research. Maybe at a MF, where you can essentially outsource everything to a 3rd party or different department. The further down market you go the less internal resources you have. HFs are lean by nature, and unless you’re a tiger fund, you’ll be doing the bulk of diligence, expert calls, etc, yourself.
LMM PE - for CDD we use CDD providers (not MBB), and on occasion do a few expert calls ourselves if earlier in the process. I believe this approach is very typical for a lot of funds across the size range.
Same at my LMM. We usually will do some expert calls ourselves but outsource most of the cdd to a market study firm (LEK, Parth, Bain, etc.).
Following. Not buyouts but worked in few midsize growth / vc shops and we have always done everything in house except some product / tech dd and confirmatory fdd / tax / legal etc. Sure we have expert networks and stuff we can tap into for calls and surveys but we still augment them with our own network and hustle. Don't think we've ever fully outsourced cdd. I'm actually surprised how hands-off the work at MF is.
Hire MBB but tell them exactly what to write. 10/10 money well spent
Lmao dude welcome to actually being an investor. The diligence you do at HFs will be even tougher and more scrutinized if anything. If you hate doing diligence just go work in banking.
OP here. Probably worth clarifying I love due diligence. I love getting under a market, the competitive landscape and developing a investment thesis. What I HATE is the high volume tactics e.g., doing 100+ expert calls myself even though we already know the answer, scaling survey from 100 respondents to 10K+, etc.
Interesting answer and I hear you. I often have to remind myself, if this were my money or my firm, there really would be no stone unturned during diligence. Unforeseen and uncontrollable things can always go against you, but it’s just part of the normal learning process about a market. There is simply no way you could possibly understand an industry fully after a couple weeks of desktop research, reading public coms, and flipping market studies. Have to actually talk to people running businesses every day. And different people will have their own unique viewpoints or tidbits that could be helpful. It can definitely suck but I’ve come to appreciate the nature of expert calls.
the model is not isolated from market and business diligence. how are you driving assumptions. for instance if you assume you grow revenue by 20% but market is growing by 10% then are you assuming you take market share etc.?
it's all tied. model doesnt operate in a vacuum
My friend we just change these numbers until the base case shows 25% IRR for our VP...
my friend and how will you justify that 5 years down the road
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