After signing the Letter of Intent, the due diligence process began in the new year, and it would take until May to sign the deal.
The experience was instructive. There is much talk of proprietary deals in private equity circles, but not only are they highly unusual, they also require much more work. In a bilateral process, information gaps have to be filled the hard way. It takes time and some heavy lifting, and sometimes there are still gaps that you, as an investor, have to make a judgement on. There tend to be certain metrics that are very telling, and TIMETOACT GROUP scored very highly in terms of customer references, the very sticky customer relationships, a strong growth with the existing customer base and its strong position to take advantage of trends, such as the digitalisation of the German Mittelstand and the shift to cloud computing.
It is also important to be respectful to management and understand that going through a due diligence exercise for the first time can be unnerving and a bit overwhelming at times.
As private equity investors, we will want to look at the key aspects of the business in forensic detail during diligence, and that can feel imposing for a management team that has never faced that kind of scrutiny before. Equistone is sensitive to this, having faced many such situations before – and so we don’t simply charge forward because for us, it’s never just ‘another deal’. It is part of the Equistone culture to recognise that a company founder is selling part of a business that they have built from scratch and put their heart and soul into.
Part of the deal involved lifting all of the minority shareholders of the subsidiaries into a single holding structure, draw up new work contracts to facilitate that and ensure that the incentive structure was aligned. Finding solutions to such complexities, while supporting management through every step of the process was hard work, and immensely rewarding.