The Art of Due Diligence: A study on private equity firms acting in the Swedish market

Sammanfattning: This paper describes the due diligence process as it is used by private equity firms acting in the Swedish market. The aim of the study is to investigate the value enhancement that the advisers provide in a due diligence, both from the perspective of the adviser and of the private equity firm. We do this by identifying what constitutes good due diligence, if the due diligence affects an investment decision and whether or not the private equity managers and advisers perceive the due diligence in the same way.The study was conducted by including representatives from 11 private equity firms, 4 consultancy firms, 2 law firms and 4 credit institutions which resulted in a total of 18 interviews and 4 survey answers.We find that due diligence has implications on the valuation and structure of the deal and mainly provides comfort in the investment decision. However, it has limited impact on the investment decision as it very seldom causes the deal not to go through. Finally, we conclude that the due diligence process is becoming institutionalized and that the private equity firms can gain legitimacy for their investments from stakeholders, such as the investors and the banks, by doing a due diligence and as an effect receive financing for the deal.