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Private Equity Letdown After Great Expectations

Surprisingly, hardly any mid-market private equity deals ever live up to expectation, according to research by Grant Thornton.

Surprisingly, hardly any mid-market private equity deals ever live up to expectation, according to research by Grant Thornton. The U.K. accounting firm found that 96% of all such deals fail to fulfill early promises, as a result of before-and-after shortcomings. Said Grant Thornton partner David Axon, ÒIt is well recognized that poor planning pre-deal and weak execution post deal, particularly in the case of business integrations or separations is likely to lead to underperformance.Ó He noted, that Òit is the stand alone businesses that can cause significant financial pain post deal.Ó Axon, who is part of the Operations and Post Deal Services team that conducted the research, said disappointment could be avoided: ÒItÕs not hard to see why management due diligence is growing in popularityÉThe problem is that itÕs impossible to provide guarantees that management can deliver the business plan.Ó According to Grant Thornton research, 41% of those polled pointed the figure to underperforming management, while 24% blamed overestimation of anticipated post-deal benefits as the main reason for disappointment, 14% fingered poorly considered integration plans, and 12% chalked it up too Òpoorly considered acquisition strategy.Ó There was another surprising finding: While 20% of mid-market p.e. investors acquired business through the formal auction process in the past year, only 2% feel this is the best way to go about getting one; 21% said the auction process is more suited to bigger firms.

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