PE Due Diligence Process?

goddzilla's picture
Rank: Monkey | 30

Hi all,

I have always wondered how PE analysts find bountiful information on private companies. For example, if my senior asks me if Company XYZ is a good investment, what steps should I take to eventually give him an answer?

I sure this is a completely rookie question, but as an equity research intern, who does due diligence on public companies, I find that I can't find much information on private ones. Thanks in advance.

Comments (9)

Feb 5, 2019

Usually entails a few of the below:

  1. Use your network to reference the business.
  2. Talk to the executives.
  3. Information memorandum (e.g. IM, CIM, CIP) prepared by a sell-side banker
  4. Hire consultant(s) who knows the space to do market sizing, customer referencing, etc
    • 1
Feb 5, 2019

Thank you for your response, but what could I do in particular? Because I'm still a student, I don't have the resources that can follow your advice.

Feb 6, 2019

Apply porters 5 forces. Is this company gaining or losing power in its value chain.
Secondly: is there something we can do with the current company (optimisation (benchmark opex and nec for instance), add products to the offering, expand to other countries).

    • 2
Feb 5, 2019

Are you currently taking courses or currently interning?

Feb 6, 2019


Learn More

9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

Feb 5, 2019

I'm an intern.

Feb 5, 2019

They shouldn't expect a real investment idea to come from an intern with just google. Maybe create a template for how you would think of a private investment, and drop "placeholder" on some mock financial pages.

Use your firm's market research that is available and do a 5 forces on an industry, pick a company, and do a swot analysis.

Most Helpful
Feb 7, 2019

In private company space, initial investment ideas come from your own work (industry mapping) or from a seller (sell side bank/another PE/maybe even management or board).

1) For own work, an analyst would have access to industry reports, industry experts to interview, consultants to do a deck on key companies. In some countries, you can also find the historical financial statements for private companies.

2) For opportunities coming from external parties, these will generally come with an information memorandum and then access to a data room to perform a DD.

In summary, they don't have bountiful information, but would get that once they engage with the company in discussions. There's also a lot of targeted googling involved. Still, in your position, why would a senior ask you about information on private companies?

    • 2
Feb 8, 2019
    • 1