Introduction
Private Equity (PE) consulting has been around for a while. Many consulting firms have practices offering private equity consulting services. It is interesting to note that even global consulting firms rely on offshoring to a great extent to deliver value to private equity clients on their most pressing issues. Offshoring reduces costs of consulting firms and some of it must be passed onto the clients (we hope!!). But what if all the advantages of offshoring could be passed onto the clients directly?
Read further to know more!!
Private Equity Consulting and Offshoring: Why it’s a match made in heaven?
Management Consulting as an industry has been around for more than 100 years on the back of its solid value proposition for clients. It brings in expertise, experience, political leverage, data sources, network, and usually signs business outcome-based projects with the clients. Usually, benefits outweigh the costs by 3X to 10X.
Private Equity Consulting and Offshoring brought together
Offshoring also picked up with the advent of the internet. As the work was possible with the help of the internet and advanced communication options, offshoring started to make sense for low-end jobs like call centers and data entry. It was followed by IT and now it is the turn of high-end research, analytics, and consulting jobs. The value proposition of offshoring is cost efficiency and scale. In most cases, offshoring also results in improvements in terms of quality and delivery apart from cost-cutting.
When we combine the forces, we have the impact of consulting with the cost advantages of offshoring, making it an unbeatable value proposition for clients in their marketplace. Remote working and service delivery reduce management consulting overheads like weekly consultant flights, high-end hotel stays, and expensive consultant fees—all typically paid by clients. Simultaneously, offshoring tasks to an expert industry group allows smaller clients to benefit from greater scale.
Business Outcomes for Private Equity Industry and the Services Offered
Major work streams at all private equity companies, big or small, comprise of following workstreams:
Fundraising and marketing or investor relations
Deal origination
Deal execution along with due diligence; and
Portfolio management to get into the operational details of portfolio companies to make it more valuable
Private Equity Consulting Business Outcomes
Magistral’s service offerings for Private Equity
Here is how Private Equity consulting helps in these workstreams
Fund Raising and Marketing/ Investor Relations
A fund is established when it has a healthy pipeline of potential investors apart from the existing ones. This is the area where most emerging managers struggle. The game does not even start if the firm is not able to raise the angel fund. However, like everything else in life, robust results need time and consistent efforts. PE consulting helps reach out to the investors and maintain a continuous touch-point to drive home the value proposition of the fund and thus enable successful fundraising rounds.
The services that help in fundraising are
Fundraising documentation
Fundraising requires a lot of documentation. Sometimes it could be enormous for an emerging manager. At the same time, it needs to be streamlined for established managers. Magistral helps prepare documents like Private Placement Memorandums (PPMs)/ Confidential Information Memorandums (CIMs), pitch decks, financial models and projections, teasers, and strategy and marketing documentation.
Investor profiling and reach-out
Funds specializing in different areas have different ideal profiles for investors or limited partners. Magistral helps in profiling and reach out to these investors. Magistral also has an in-house database that carries leads of more than 15000+ Limited Partners (LPs) and General Partners (GPs). It can also access databases of other players if the task needs it.
Design and Data Support
Magistral has an in-house design team that streamlines the PowerPoint designs and makes them consistent with the global marketing standards. We often receive content in raw form—scribbles from a notepad or whiteboard—and transform it into well-designed PowerPoint decks ready for investors. Similarly, we enhance the visual impact of pitch decks and PPMs, and streamline investor-related data or CRM systems to ensure clarity and consistency.
Newsletters
Multiple touch-points with investors mark content like Newsletters, PoV documents, Industry reports, and market research. Magistral has experience working with hundreds of clients working on these assignments. It has access to resources like secondary sources, interviews with the panel of experts, and triangulations to come up with market sizes, etc. Worthy content establishes the authority of the Private Equity fund in the eyes of accredited investors.
Sustainable Investment and Impact Assessment
We have a specific service offering around ESG analysis, sustainable investments, and impact assessments of the current or potential assets acquired by the Private Equity firms.
Deal Origination
Deal origination services make sure that the focus of the GP is on the suitable targets and populate the deal pipeline with more appropriate deals, to be taken up as and when required. Picking up the right deals is the lifeblood of PE operations. It’s by picking up the right deals that a GP can offer superlative returns to its LP investors. Magistral helps with Deal Flow support and Inbound deal flow analysis.
The deal origination related services offered are:
Industry tracking and landscaping
A Private Equity firm needs to scan the environment for investing continually. It needs to track its key markets, geographies, and industry regularly to take advantage of emerging trends. Magistral has helped multiple clients in tracking industries like healthcare, SaaS, blockchain, cybersecurity, heavy engineering, and many others.
Potential target identification
A list of suitable potential targets is generated using secondary and primary sources. As per the investment thesis, the targets satisfy a host of customizable criteria like revenue, profits, employees, industry, geography, and being open for investments. Secondary sources include databases, whereas primary sources are industry associations, accelerators, angel investor groups, etc.
Target company profiling
After generating the list of potential targets, we shortlist the companies of interest and conduct a deeper dive. We profile each target company by analyzing its business details, strategy, latest developments, management, SWOT, Porter’s Five Forces, and other customized information. Understanding the openness of the company for an investor on the board is also studied at this stage.
Target pipeline management
For deals to be continuously happening, the pipeline needs to be populated continuously. There should be deals in all stages of deal-making. That is ensured by filling the targets in the funnel on an ongoing basis.
ESG Analysis
ESG or impact analysis is more critical than it was ever before. It’s imperative then that Private Equity firms evaluate the deals for ESG fitments. A company that performs better on ESG frameworks is a more sustainable investment and makes a far-reaching impact on the society and communities it serves.
Inbound deal flow management
If a firm receives lots of inbound inquiries, there needs to be an agency to sort out the worthy opportunities from the non-serious ones. Magistral matches the opportunities with the GPs investment thesis and brings forward the best deals.
Summarizing and preparing IMs:
If start-ups send IMs, the same need to be summarized for discussion with the investment committee. Magistral summarizes the Investment memos into investcomms decks for quick and effective decision making.
Deal Viability Analysis: This involves getting into the nitty-gritty of a deal, identifying red flags both inside out and outside in, to make sure the deal produces the impact, which is the aim of the investment to start with. This is achieved from the exhaustive and comprehensive market and company research.
Deal Execution and Due Diligence
Deal execution and due diligence ensure the right investment decisions to produce significant returns, identifying risks for better planning post-investment or M&A.
Here the services are about providing all the foresight and intelligence to make the right decisions. The primary service offerings here are:
Target company due diligence
Here, Magistral takes access to the data rooms and analyses the information to produce highly relevant deliverables and insights. Due diligence includes financial, operational, and ESG related aspects of a firm. Magistral works with both Private Equity firms and Investee companies. It prepares Due Diligence Questionnaires (DDQs) and collects information from the investee companies, either directly or indirectly.
Industry Research
Here, industry research is more specific and has to do with the target company’s operations. We capture details like trends, SWOT, Porter’s Five Forces, key competitors, pricing trends, and news to provide a holistic view of the target company’s industry.
Detailed company profiling and competitive intelligence
At this stage of the company profile, we capture details from multiple sources such as ex-employees, management, current staff, vendors, competitors, investors, and industry stakeholders. We also gather information on competitors and their strategies using both primary and secondary sources.
Investment Memorandums
If the investment involves co-investors, the team prepares standard documentation such as the Investment Memorandum, Confidential Information Memorandum, Pitch Deck, and Financial Models.
Modeling and Valuations
This exercise ensures that deal is made at the right prices so that there is a significant upside for the investment returns. Magistral has prepared 100+ financial models for valuations in industries like SaaS, tech, healthcare, IT, manufacturing, B2C retail, fashion, chemicals, and e-commerce. Magistral captures the information and assumptions for financial models through detailed discussions with the client. We specialize in building 3-part financial models, LBO analysis, DCF modeling, real estate modeling, precedent transaction analysis, comparable analysis, and impact analysis.
Portfolio Management and Fund Management
Portfolio Management aims at maximizing the value of the investment in a company by a Private Equity firm. This is achieved by supporting various tasks of the acquired company to reach more customers, hence improving revenue or reducing operations’ costs. Fund Management is about streamlining the functions of the fund itself to focus on the core tasks of investing and fundraising.
Here the services are:
ESG Compliance Monitoring
Magistral assesses the ESG maturity of an investee company, suggests a set of metrics for ongoing monitoring, collects data on these metrics, and reports the findings to the board, management, and investors every quarter.
Outsourced CFO
Outsourced CFO services are relevant for both funds and the portfolio companies, specifically in the cases where the PE firm invests in start-ups or smaller firms. These companies may not be in a position to invest in a full-time CFO and thus may go for an outsourced CFO that is fractional and provides the operational and cost flexibility. Sometimes Financial Process and Accounting could be outsourced, while CFO could be kept in-house. These tasks include accounting, bookkeeping, administration, procurement, and preparation of financial statements
Outsourced Fund Administration
This service is specifically for funds and takes care of all the administrative aspects of the fund like fund accounting, expense monitoring, trade reconciliation, distribution waterfalls, taxes, fees, incentives, expenses, etc.
Strategy and Business Development support
After the investments, most PE firms focus on growing the revenues of the portfolio companies. This is done through a slew of interventions on strategy and marketing. Magistral supports these activities by providing services like consumer and market studies, new product or market development, lead generation, which is critical in the B2B space, and finding follow-on acquisition or buyer for the investee companies.
And this is how Private Equity consulting joins forces with offshoring to provide an unbeatable competitive advantage for our clients.
About Magistral
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.