Commercial Diligence: Pressure test the thesis
Matters Graph's team has decades of experience advising leading private equity firms and corporations. We have a deep appreciation for the value that a truly great Commercial Due Diligence (CDD) exercise can deliver:
- Avoiding regrettable investments,
- More effective underwriting, and
- Stronger business plans (informed by the pressure testing on the market, the company, and the value gen. investment thesis).
We are also highly skilled in both the art and science. We employ robust practices—including making sure that the scope is tightly focused on the investment thesis—to complete work plans within tight deadlines, deliver maximum value, and mitigate broken deal costs.
An integrated mindset to supporting your transaction: Your journey as an investor to create value starts well before closing the transaction—it begins with a strong market thesis, ideas for an actionable value gen/growth plan (incorporated into the investment thesis), and Diligence that earnestly assesses the validity of both.
Post-close, bringing Management in to support and accelerate the execution of the pressure-tested commercial Diligence value generation plan is essential in that journey.
Matters Graph's approach to supporting clients recognizes each of these stages for what they are; we design work plans to reach the optimal breadth and depth of consideration appropriate to the stage, allowing us to effectively and efficiently (but never at the expense of effectiveness) support clients through the investment process. And we design our research methods and analytical approach to ensure that you are best equipped through:
- Commercial Opportunity Assessments (i.e., "Market Studies" and "Market Thesis Work") that clarify market opportunity and distill the investment thesis and Diligence agenda;
- Commercial Due Diligences (traditional CDD) that robustly pressure test the strength of the target company, the market it plays in, and the growth Value Generation theses and lay the groundwork for the 100-day and then after business activities; and
- Commercial Value Generation (CVG) support that accelerates Management execution post investment on the hard work of bringing growth strategies to life—repositioning the company, re-pricing, rethinking the customer or product mix, and more (see Commercial Value Generation)
As clients' investments mature throughout the hold period, Matters Graph provides support with growth strategy planning and market work that become valuable additions to exit planning and narratives. As a buy-side-only firm, we do not conduct Vendor Due Diligence or sell-side work; this is part of what makes us the best providers of our earnest, best-in-class buy-side analysis. We share our rationale in more detail here.
What does great support look like?
Of course, CDD exercises must answer the question "Is this asset worth investing in?" But the most helpful exercises go far beyond this. We help our clients become better owners/operators by delivering insights with sufficient granularity to direct them towards future opportunities.
In our Diligence Matters toolkit, we document best-practice workflows that help bring that to life by focusing our collective efforts on the "Matters that Prove to Count."
It requires creating clarity of purpose, focus on your plan for the work, and bringing the process and capabilities to execute that plan in a tight timeline to build conviction.
Clarity of Purpose
Our purpose: Diligence that matters.
Many strategy and management consulting firms rely on in-house experts who, by operational design, steer answers upfront (as a stage one activity) based on their experiences and personal perspectives. Storyboard writing serves as the early and dominant exercise that drives engagement efficiency and boosts engagement profitability for the consulting firm. However, it also creates significant bias and limits effectiveness, because researchers often focus only on areas where they shine the flashlight. So, unlike other consultancies, we do not use storyboarding.
We believe that the answers that matter the most are the ones that come directly from customers and users (and finding the ones who are genuinely in the know), who are responsible and have direct experience with the problems and the goods and services available; let customer and user sentiment determine the answers; rather than prescribed or "expert" views that then find enough supporting quotes to make the point(s) predetermined as "known."
Our work is not a rubber-stamp exercise, and we do not see our role as being an "easy yes." A proper Diligence assignment starts with the appropriate mindset and habits. Because Matters Graph only works on the buy-side, our culture and ethos as a firm are uniquely, narrowly focused on pressure-testing the opportunity with integrity. Our purpose is to create conviction where it is warranted, allowing our clients to act decisively on the right opportunities. Not every deal is the right opportunity, and we won't shy away from sharing that conclusion when we hold it.
And yet, many deals have the potential to become more attractive opportunities when viewed through a robust value generation mindset that considers not just the business as it is today, but also what the company can become. At Matters Graph, we recognize that every business faces challenges (and addressing the challenges is how it earns its rent, and the solutions it employs determine how much rent it gets paid). We believe in directly confronting the "hairy" parts of a deal, while creatively considering opportunities to build value over time—to allow our clients to win more deals based on true commercial merit in the business and the value gen thesis. If a target is weak on factors that matter to essential segments of the market, we view this as good news, as it provides clarity on what to improve, rather than something to overlook or downplay. Ultimately, an asset that is going to increase in value is one where its new owners understand where to focus resources, Management, and Board attention.
Focus (a Bespoke Scope)
Matters Graph scopes every project in a bespoke manner, tailoring Diligence to the critical questions appropriate to both the nature and stage of the deal. What do you need to know now to advance? What are the pressing items for you (and your co-investors) that are most exciting or nerve-racking?
Matters Graph regularly supports clients through both:
- "Issue Diligence": scopes tightly organized around a small number of threshold questions; and,
- Full-Scope Commercial Diligence: robust, comprehensive analysis of the market and business covering all the matters that the investment committee (and any co-investors) or board is going to need to understand
In all cases, we will, together with you, determine the most valuable issues to resolve and design the project to focus on those topics. In fact, we developed a comprehensive and detailed topic list in our Diligence Matters® toolkit to support careful scoping and prioritization. We use these tools to ensure that the assignment scope considers all the appropriate items that have proven to make or break other investments. A rigorous approach prevents teams from inadvertently neglecting essential topics.
Commercial Value Generation
We employ best-practice methods and tools—developed through our years of experience and passion for delivering excellence—to maximize the value of every project.
As core to our process in CDD, we avoid expert networks: Matters Graph custom sources for every engagement through an investigative process, and the process of finding the right person goes beyond publicly available information with primary research (i.e., phone calls) used to find the right people, and not just the people who have signed up to be part of a system to supplement their income by selling over-represented expertise. It is vital to do the hard work to identify the right person, regardless of whether that person has put themselves on a professional or social network, and regardless of their interest in being in the market to enjoy supplemental participation and earnings by being part of these "expert networks."
Our investigative process begins with the right sourcing approach, but it doesn't stop there. Unlike the large strategy firms, Matters Graph's team members each take on a fully integrated process, with no parsing of tasks or failing handoffs. Effectiveness over efficiency is our mantra. Each engagement team member conducts secondary research, leads sourcing activities, conducts the investigative interviews, identifies breadcrumbs to investigate further, develops iterated (and evidence-informed) hypotheses, prepares the analysis, pressure tests the evidence and the case, writes the presentation, directly leads the delivery of the findings to our clients, takes clients' questions, and addresses the follow-ups. Matters Graph consultants conduct primary research in a process that is creative, exploratory, and focused on real-time analysis (i.e., we consider what we are hearing as we hear it and drive an investigation during a discussion with customer organization decision-makers). We never follow a strict "script" in our interviewing, because we do not exercise any form of rote questioning: investigative interviews are about active listening and careful and thoughtful probing for nuance – including exploring magnitudes, important exceptions, and context.
The last thing this process resembles is a verbal survey, and our exercises should never include "interview scripts." Thoughtful work is fun and effective – a process in which Matters Graph enjoys the discussions for their intellectual exercise (on our favorite topic - business), and so do the interviewees, as they work together to explore exciting factors impacting those working challenges and find better solutions. In Matters Graph deliverables, we do not settle for simple synthesis of customer views; instead, our conclusions will address the business strategy questions posed in our scope of work.
All of this leads to better work; less "efficient," but far more effective, because fidelity of the findings stays at 100% and less is "lost in translation."
To inform our process and continually improve, we have documented lessons learned throughout the years in our Best Practice Briefs, sharing our learned experiences and knowledge with the investment community and our clients.
Capabilities
Matters Graph's core operating model is that our consultants are also our in-house researchers. Each engagement team member – as part of the case cracking team - conducts secondary research, leads sourcing activities, conducts investigative interviews – and identifies breadcrumbs to investigate further, develops iterated (and evidence-informed) hypotheses, prepares the analysis, pressure tests the evidence and the case, writes the presentation, directly leads the delivery of the findings to our clients, directly takes clients' questions, and addresses the follow-ups. But unlike most "research houses" and expert networks, Matters Graph prides itself on its experiences as a strategy consulting firm. Our consultants are elite: graduates from top schools, often with MBAs, who have achieved extraordinary success. They have experience working with and advising leading corporations, executive decision-makers, and investment teams from private equity firms.
Matters Graph has well-codified pre- and post-transaction playbooks for Commercial Due Diligence and Commercial Value Generation (CVG, our practice focused on post-transaction value generation).
Closing Diligence, Opening Value Generation
For our clients, the real work begins once they complete Diligence and win a bid. We understand this, so we approach our job to create the most leverage for their next phase: ownership and management.
Our CDD investigations and analyses conclude by pressure-testing the provisional thesis and addressing the compilation and assessment of risks, as well as providing recommendations for key revisions to the thesis, supported by a substantial body of evidence.
Like you, we may wish we had more budget and time to do more work, but we understand what real-world pressures are all about. We will take a stand to help support your decision-making needs, providing the critical caveats to paint the whole picture, not to create ambiguity, but to help you become a better owner/operator.
But closing Diligence is only opening the window for Value Generation. As we wrap up CDD, members of our CVG team join our key deliverable reviews and Value Generation workshops to push and advance our creative efforts in advising on the next stage of Value Generation. We conclude every CDD with outputs from this collaboration in the form of a creative examination of opportunities for Value Generation and recommendations for what the first 100 days could represent.
Since our founding in 2017, our goals have always been and will continue to be:
- To do Diligence that matters; and,
- To prepare you (and your Management teams) to be better owners (and operators).
