In the dynamic landscape of private equity, where stakes are high and the margin for error is razor-thin, thorough due diligence is non-negotiable. While financial assessments are fundamental, the often-overlooked scrutiny of sales and marketing functions can make the difference between a lucrative acquisition and a costly misstep. Sales and marketing are the core engines driving a company’s revenue and margin growth, and understanding their health and performance is crucial for de-risking investments and accelerating time to value.

The Hidden Risks of Overlooking Sales and Marketing

A 2023 Bain & Company study found that commercial excellence initiatives focused on sales and marketing were the top driver of revenue growth for private equity portfolio companies, delivering an average revenue uplift of 27%. This underscores how critical it is for private equity firms to prioritise optimising the sales and marketing functions within their portfolio companies. Failing to address weaknesses or missed opportunities in these areas can significantly hamper a company’s ability to achieve its full growth potential under PE ownership. Without a clear picture of these functions, investors may face unforeseen challenges such as underperformance in revenue generation, declining customer retention, market misalignment, and operational inefficiencies.

Rigorous sales & marketing due diligence delivers:

1. Risk Mitigation. Sales and marketing due diligence helps identify potential pitfalls before they become costly problems. By assessing the maturity and effectiveness of these functions, investors can uncover hidden risks related to market positioning, competitive landscape, management capability and operational scalability. This proactive approach ensures that any weaknesses are addressed early, reducing the likelihood of post-acquisition surprises.
   
2. Informed Decision-Making. A comprehensive evaluation of sales and marketing functions provides critical insights that inform investment decisions. For instance, understanding the current sales process, lead generation strategies, and customer engagement practices can highlight areas needing improvement. This knowledge allows investors to make more informed choices about where to allocate resources and how to prioritise initiatives post-acquisition.
   
3. Accelerated Time to Value. Conducting thorough sales and marketing due diligence can significantly speed up the time to value realisation. By identifying and implementing strategic enhancements early, investors can boost the portfolio company’s performance and drive growth from day one. Effective sales and marketing strategies, aligned with business objectives, ensure a smoother transition and quicker achievement of revenue targets.

Key Components of Sales and Marketing Due Diligence

The process involves a multi-faceted approach to ensure a deep understanding of the company’s market and operational dynamics:

1. Strategy review. Examining sales and marketing strategy and the alignment to the business goals including organisational structures, KPI’s and performance. 
   
2. Stakeholder Interviews. Where possible, engaging with key personnel, including the CEO, CRO, and Head of Marketing, to gather qualitative insights and assess leadership and team capabilities.
   
3. Process and Data Analysis. Reviewing sales processes, customer engagement practices, CRM usage, and marketing effectiveness data to identify strengths and areas for improvement.

This detailed assessment provides a blueprint for enhancing sales and marketing functions, offering recommendations that can transform potential risks into growth opportunities.

For private equity investors, the importance of sales and marketing due diligence cannot be overstated. It is a critical step in de-risking investments and ensuring a clear path to value creation. By thoroughly understanding the health and performance of these core business functions, investors can make more informed decisions, mitigate risks, and accelerate growth. In a field where success hinges on strategic insight and operational excellence, sales and marketing due diligence is the key to unlocking a portfolio company’s true potential.

Sprint10: pre-investment sales and marketing due diligence assessment

Sprint10 is a 10-day comprehensive sales and marketing pre-investment due diligence assessment by Magnus and SBR Consulting that dives deep into the health and performance of sales and marketing, providing critical insights that inform investment decisions and shape post-acquisition strategies.

By focusing on the critical revenue-driving functions of sales and marketing, it not only mitigates risks but also sets the stage for rapid value creation. In today’s competitive market, leveraging such in-depth assessments can be the difference between a good investment and a great one.

Get in touch and partner with Magnus and SBR Consulting to harness the full potential of your investments through Sprint10. We’d love to hear from you.