Value creation in PE dealmaking starts with expert due diligence

“We have a positive outlook for PE dealmaking over the next 12 months, with expectations that transaction flow will increase as interest rates continue to come down,” states Peter Platt, Director: Corporate Finance at Forvis Mazars in South Africa.

While additional reductions will support the market, inflation remains a concern, especially as global trade wars intensify. However, positive trends in certain sectors and geographies already offer attractive opportunities. 

Findings from the Forvis Mazars global private equity report 2025, which features insights from over 300 respondents across North America, Europe, Asia-Pacific, Africa, and Latin America, show that firms are optimistic, and sentiment remains positive, supported by their capacity to operationally drive value creation despite the prevailing market uncertainties.

“Globally, the financial services and technology and telecommunications sectors emerged as the most prolific areas for dealmaking,” explains Platt.

South Africa’s mature financial services market is also a prime target for PE deals, with the sector awash with digital-led innovation.

“Renewable energy is another popular theme for certain PE funds as the country invests in utility-scale solar generation, windfarms, oil and gas to develop alternative solutions that address Eskom’s coal-fired power generation constraints,” continues Platt.

Platt adds that the country also has numerous mid-market businesses that generate good returns, which is attracting interest from local and foreign investors.

“Investors are primarily looking for cash flow-positive businesses with low capex and low working capital requirements.”

In fact, South Africa ranked third in the Forvis Mazars global PE report, with 14% of respondents reporting PE investments in the country, behind the US (30%) and UK (16%).

“We have worked on numerous transactions in the last few months where foreign buyers were looking to invest into South Africa, which is a positive development,” affirms Platt.

Numerous trends are driving this local deal activity, especially in the mid-market space.

“Business owners who do not have a succession plan and want to exit the business are looking for buyers,” explains Platt.

“Another major driver is companies looking to secure the BEE credentials necessary to continue winning big accounts, which they aim to achieve by selling an equity stake.”

In these instances, partnering with an advisory firm with insights into previous deals in the same sectors can add significant value.

An advisory firm with a proven due diligence track record can help identify potential red flags that could negatively impact the investment, such as hidden liabilities, legal issues, financial irregularities, and operational weaknesses.

Platt elaborates: “A comprehensive due diligence process can uncover hidden gremlins, allowing a PE firm to bail on a potentially bad deal, or it can help a client affirm their confidence in the business by analysing factors such as margins and cash flows, customer spread, concentration risk, and working capital cycles.” 

Platt says diligent analysis is needed to uncover a company’s financial and structural health and the human resource elements to help buyers thoroughly understand the risks and opportunities and unlock deal value.

“These requirements have thrust the due diligence process to the fore for PE firms, as some trade buyers feel they can conduct this process internally,” continues Platt.

However, due to the critical nature and compliance requirements, PE firms need independent due diligence to meet bank and lender risk management policies.”

When conducting the due diligence process, Platt says technology is playing an increasingly more important role.

“Digital tools empower consultants to move away from manual processes to more quickly aggregate information.”

Automation and data analytics help to speed up the process, allowing consultants to look at the business more dynamically and start the underlying analysis sooner to deliver a comprehensive report in shorter timeframes.

“The ability to access tools in the background that make consultants more efficient with tools that populate data, and develop questions, allows them to spend more time on higher-order tasks that add greater value to the analysis,” elaborates Platt.

Technology can also help introduce efficiencies into the report-writing function to further reduce timelines.

“The due diligence report is the ultimate output, serving as a resource with which PE firms can make informed decisions about whether to proceed with the deal and if so, how to structure it to minimise risks and maximise value.”

Platt says providing focused reports that are very specific and to the point, helps frame the key considerations for the business upfront for more agile and nimble decision-making.

“A concise executive summary that identifies important elements, such as net debt, sustainable earnings and cash flow, as well as working capital requirements, deliver the quality insights needed for informed dealmaking,” asserts Platt.

Drawing on insights from a multi-disciplinary team that includes input from experienced and knowledgeable senior resources also adds important value to the process.

“Cross-pollination across the value chain, including director involvement from the due diligence to the funding and deal structuring stages provides valuable insights and continuity to deliver the best outcomes for buyers and sellers,” adds Platt.

“In essence, the due diligence process is more than just a tick-box exercise. It is a critical process that requires expertise and unique capabilities to help PE firms make informed investment decisions, minimise risks, and maximise value,” he concludes.