Doing ‘Management Due Diligence’ post-deal. A better solution for everyone?

In today's private equity landscape, investors seem to be doing less management due diligence using third parties than previously - the value of due diligence to UK mid-market investors.

This retreat from formal MDD often stems from fast-moving deal processes or concerns about affecting the investor-CEO relationship at a sensitive time. When diligence is done, it frequently focuses narrowly on referencing and individual assessment.

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The Hidden Risks of Limited Due Diligence

Looking only at individual reputations, styles, and experience misses some of the most crucial questions investors should be asking when backing a team, for example:

• How complete is the team? Does it have enough bandwidth and capability to work on a set of strategic initiatives?

• Is there a clear hierarchy of strategic priorities guiding management decisions?

• Are the various business functions sufficiently proactive to handle their parts of the value creation plan?

• Is the organisation joined up enough to improve key customer and operational processes?

Without good answers to these questions, boards risk committing to goals that teams and organisations simply cannot execute, causing value destruction - The Seven Sins. While investors might assume executive teams understand what they're signing up for, evidence suggests otherwise.

Investors consistently report surprises about management quality, with 35% of deals generating unexpected issues compared to 25% two decades ago.

Catalysis experience across many projects using team questionnaires shows that senior teams are noticeably more optimistic about organisational effectiveness than their second-tier colleagues.

More generally, boards can be unaware of problems further down the organisation – with the happy side effect that there are often plenty of quick wins when those issues are made visible -  making the invisible visible.

Bridging the Knowledge Gap

In this context, how can investors and CEOs bridge this knowledge gap in a constructive way? A structured approach with three levels of engagement can help:

1. Snapshot

   Gather input from first and second-tier management

   Use a comprehensive organisational questionnaires

   Cover all areas of team and organisational development

2. Diagnose

   Identify patterns across responses

   Connect insights across different areas

   Develop a holistic view of organisational health

3. Action Plan Roadway

   Create targeted workstreams to address bottlenecks

   Focus on practical, high-impact interventions

   Build clear accountability for improvements

The Post-Deal Advantage

While pre-deal sensitivities often limit deep organisational assessment, the post-deal period offers unique advantages:

• Investor concerns about affecting deal chances are no longer relevant

• CEOs have less incentive to present an overly polished picture

• The pressure to deliver on ambitious plans creates motivation for honest assessment

• Teams are more open to identifying and addressing bottlenecks

Making Change Happen

Our experience is that when management teams are given clear evidence of organisational bottlenecks, 70% can be resolved with limited external support. The key is having the right tools and frameworks to:

• Gather granular data on organizational health

• Identify specific capability gaps

• Create practical improvement plans

• Track progress through regular assessment

For investors looking to enhance returns, paying more systematic attention to organisational health represents a significant opportunity. The challenge is developing the capabilities and processes to do this consistently and effectively.

The Path Forward

As deal multiples rise and execution challenges grow, investors can't afford to treat organisational effectiveness as secondary. Making the invisible visible - and actionable - has become crucial for generating strong returns. The good news is that many organisational issues, once surfaced, can be addressed through focused effort. The key is having the right tools and frameworks to spot problems early and craft practical solutions.

For private equity firms looking to improve their approach, starting with a structured post-deal assessment can provide quick wins while building the foundation for more systematic organisational development.

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