Sometimes the best result from the due diligence process is to decline an investment opportunity. The target acquisition may not fit the investors’ criteria for a number of reasons. Product capabilities and market demand are two such criteria that a technical due diligence advisor can evaluate.
A large publicly traded vendor of gateway security devices was looking for private equity buyers. Richard Stiennon was called in to assist with the product capabilities and direction. Stiennon had known the company from its inception and IPO as a web content acceleration company. After several years the company pivoted into security and web content filtering. Stiennon attended the technical review meetings to ask the hard questions and evaluate the company’s attempt to move to a cloud security offering.
The result, presented in a formal SWOT (Strengths, Weaknesses, Opportunities, Threats) report, was a strong opinion that the target had little opportunity to succeed as a private company. It’s market share had peaked at 8,000 customers, it did not have a product plan for the distributed enterprise (retail, healthcare, manufacturing, distribution, hospitality) and its cloud product was nothing more than an internally funded startup with all of the incumbent risks.
The private equity client declined to invest.