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Commercial Due Diligence of an Engineering Services Firm

December 17, 2021

Treacy & Company’s proven growth diagnostic tools and methodologies – Market Mapping, Sources of Revenue Analysis, Main Parameters of Value (MPV) Analysis, Organizational Growth Discipline Assessment – offer our private equity clients a valuable complement to their traditional commercial due diligence asks.

Through our experience working with investor groups, we have found time and time again that a myopic focus on external market factors “misses” the whole picture of an asset’s risk profile and valuation.  For many of the targets we’ve evaluated over the years, the real risk lies not in the health of their in-markets but instead in management’s ability to develop and execute consistently against their growth plans.

Our recent work with a long-term private equity vehicle, “PrivFirm”, demonstrates just how valuable our holistic approach can be.


Our client PrivFirm was evaluating an investment in a high-growth engineering services firm with ~$150M in revenue (“EngCo”).  EngCo’s business is diversified across Land and Power Generation end-markets (particularly renewables), and the firm experienced strong above-market growth fueled by acquisitions over the last 3-5 years.

With an agreed-to 8X EBITDA multiple at LOI, PrivFirm’s partners thought the deal felt “too good to be true” – comparable companies were trading hands at 12-15X EBITDA multiples in auction settings.

The Problem

EngCo was not preparing for acquisition when originally approached and had been less forthcoming with information throughout the pre-LOI due diligence process.  PrivFirm turned to T&Co to understand the fundamentals & growth trajectory of EngCo’s end markets and the growth competencies & discipline of the EngCo organization.

Our Approach

T&Co’s growth-focused commercial due diligence approach balances an external market assessment common in ‘traditional commercial due diligence’ with an internal growth diagnostic of the target company’s fundamentals and competencies to deliver a holistic recommendation. 

case study

Our work included an in-depth assessment across EngCo’s six business units to validate:

  • Organic market growth expectations – triangulated across key MSAs and end markets
  • 50+ end customer and expert interviews to evaluate performance on customers’ purchase criteria and recognition & perceived quality vis-à-vis top regional and national competitors
  • 5-year Sources of Revenue analysis to identify root causes of growth / decline by business unit – including the contributions of market growth and organic vs. acquisitive growth
  • Forward-looking growth plan evaluation and blinded EngCo leadership interviews to assess feasibility of plan and management’s ability to deliver growth results profitably
  • Adjusted 10-year revenue projections and associated risk factors / mitigants to right-size management’s growth projections

The Results

Our assessment highlighted that the real risks in the transaction for PrivFirm were predominantly those of internal growth competencies, not external market factors – risks that a traditional diligence process would have missed.

Our assessment highlighted three key organizational competency gaps:

  • Lack of systematized talent management systems to attract, onboard, upskill, and retain the A-team – high risk post-acquisition that top talent would cash out, and the labor market was only continuing to tighten
  • No acquisition ‘machine’ to target, acquire, and integrate 3-5+ deals / yearthe scale EngCo projected hinged heavily on their ability to effectively integrate and grow newly acquired business quickly
  • Inconsistent growth portfolio planning & performance management to drive and govern predictable growth results – tenured management plans relied on past success and relationships, while newer management did not have the needed experience to execute ambitious plans

These gaps led us to a recommendation that EngCo management’s organic revenue growth expectations should be reduced by 5% to 20% over 10 years via progressive risk adjustments.