PE sees shift in due diligence focus to management - AVCJ Forum

"Over the past four or five years the integrity of management has become much more important," Randall Phillips, managing director with Mintz Group, told a panel on effective due diligence at the AVCJ Forum in Hong Kong. "There is more intense scrutiny on how a management team functions and governs the company and how it grows its business model."

Velisarios Kattoulas, chief executive of Poseidon Group, remarked that the way management is assessed has become much more process- and technology-driven, adding that an ability to employ non-traditional methods of due diligence could become an important differentiator for consultants.

"People are taking advantage of technology and going that extra mile to really drill down on companies and management teams," he said. "When you look at private equity deals that have gone off track, 20% is maybe market timing, the other 80% can be traced back to the integrity of the management team. The extra scrutinity of management these days is a reflection of that."

He added that much of thiis change has been driven by LPs who, in the light of such incidents as the Caterpillar China accounting scandal, are putting more pressure on GPs to review their due diligence process.

"If you have poor management even the best company goes bad," added Phillips. "But if you have a bad company with good management there is at least possibility of coming out with some level of return."

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