Skip to main content

Due Diligence in Private Equity: What PE Teams Expect

3 Min Read

Due diligence in private equity keeps winning firms moving fast. Top-tier teams pursue diligence work to pressure-test assumptions early. They understand where the story breaks before the auction accelerates.

Diligence doesn’t eliminate risk. It clarifies which risks are being underwritten and how they should be priced.

Good Diligence vs. Great Diligence

Most PE firms validate financials, review customer concentration, and confirm that management’s narrative aligns with reported results. That’s the baseline — it tells you what’s there, not whether the deal is worth doing.

Great diligence starts by identifying what must be true for the investment to work, then tests those assumptions first. It’s not about checking more boxes; it’s about knowing which questions actually matter for this specific deal.

Every deal carries risk. The goal isn’t to eliminate it — it’s to understand exactly what you’re taking on and price it into your valuation. That clarity only comes from speaking with the right experts: people with direct, relevant experience in this specific industry.

Why Diligence Is a Competitive Advantage

Diligence becomes a competitive advantage when it produces proprietary insight.

Firms that speak with operators and competitors surface risks and angles earlier. That preparation shows in management meetings. Questions get sharper and deals move more quickly. 

That expert insight determines valuation and post-close priorities. 

In competitive processes, disciplined diligence separates conviction from deal chasing.

How Top Teams Structure Diligence by Deal Stage

Diligence is not just defensive. Connecting with the right experts at the right time is how firms differentiate. Here’s how winning teams approach due diligence in private equity. 

1. Pre-IOI: Rapid Thesis Validation

In private equity due diligence, top teams use expert calls early to validate the market narrative before committing significant resources. Top teams use 2–3 high-impact expert calls to “kill” bad deals fast or build the confidence to move forward. Effective pre-IOI diligence focuses on:

  • Key Value Drivers: Validate the “big wins” and growth levers mentioned in the CIM.
  • Industry Trends: Ensure latest market shifts support the core investment thesis.
  • Competitive Landscape: Size up the field to see where the target actually stands.
  • Early Red Flags: Identify “deal-killers” that aren’t visible in marketing materials.

A small number of highly relevant conversations beats broad outreach.

2. IOI: Focused Commercial and Operational Scrutiny

At IOI, teams move from validation to pressure-testing. Operators with lived experience help uncover what actually matters day-to-day:

  • Profit & Loss Drivers: Uncover where profits are made—and lost—at the ground level.
  • Customer Resilience: Test how customers react to price shifts or service disruptions.
  • Win/Loss Analysis: Identify the target’s “right to win” via those who have bid against them.

Operational Reality: Separate real conviction from “surface-level” management confidence.

3. Post-LOI: Confirmatory Diligence and Value Creation Planning

Once under exclusivity, the focus shifts from validation to granular execution. At this stage, firms leverage a broader network of seasoned operators and “river guides” to de-risk the investment and build the 100-day plan.

At this stage, PE due diligence should focus on:

  • 360° Perspective: Pressure-test retention and pricing power through customer/competitor eyes.
  • Risk Mitigation: Neutralize hidden operational or cultural risks before they bite post-close.
  • Valuation Confidence: Finalize the purchase price and QofE with primary data.
  • Value Creation & Add-ons: Identify specific bolt-on targets and scaling strategies.
  • Day 1 Readiness: Leverage seasoned operators to finalize the 100-day execution plan.

With input from operators who have scaled similar businesses, top teams finalize their value-creation thesis and lock in decision confidence.

Building Conviction, Not Just Completing Checklists

When done right, due diligence in private equity builds relationships with seasoned industry operators—River Guides—who stay involved across the deal lifecycle. Best-in-class firms skip a dozen generic calls and connect only with the right expert at the right time.

These advisors sharpen diligence, challenge assumptions, and strengthen credibility with sellers early. Many remain engaged post-close, supporting execution and governance. 

Apex Leaders is an expert network built exclusively for private equity. We identify and vet exact-fit operators for each deal decision, supporting conviction from diligence through close.

Contact Us