Commercial Due Diligence / Technology and SystemsTechnology Due Diligence for a Private Equity Acquisition of a Multi-Site Early Years Group
Audience: Investors2 weeks
FROM INSTRUCTION TO FINAL REPORT
9
AREAS OF SCOPE, EVERY TRADING SETTING
One register
EVERY SYSTEM, CONTRACT AND RENEWAL ACROSS THE ESTATE
4
DELIVERABLES TO THE DEAL TEAM AND ITS LAWYERS
The Situation
A private equity investor was acquiring a multi-site early years group that had grown by buying settings.
The deal team wanted to know whether the systems were right for the business as it traded, where they would strain as the group grew, how settings running different systems would be brought together, what the business would need to buy as it scaled, and what the sector’s regulatory and safeguarding requirements meant for its systems and its data.
The answer was needed inside two weeks to hold the completion timetable.
What Litus Did
Do the numbers the systems report hold up against the records underneath them? A group built by acquisition rarely runs one system. It runs what the platform chose and whatever came in with each setting, with the reporting sitting on top of both. Where the reported position and the underlying record disagree, the exposure is a funding claim made on numbers the group cannot evidence.
01
Nine Areas, Every Setting
The systems estate and what each setting had inherited. Data integrity. Whether the rota and attendance systems could evidence staffing ratios through the day, or whether that record was built after the event. Contracts and licensing. Change of control, and whether the tenant, the domains and the data were held by the company or by an individual. Data protection. Cyber resilience and continuity. Growth and integration. Total cost of ownership.
The information request was cut to what only the seller could supply.
02
Reconciliation on the Funder’s Ledger
Occupancy as the group reported it was reconciled to the funder’s own payment record for every setting and every year held. That put the test on a record the seller does not produce. Nothing identifying a child was requested or received.
The systems were seen live, run by the people who use them. Every statement in the working papers was marked as observed on screen or as management’s account.
03
Register and Cost Schedule
Every system across the estate went into a single contract and renewal register. Contracting entity, renewal date, notice period, change of control position and annual cost, in the form the buyer’s legal advisers could work from. The cost schedule set what the estate costs to run today against a normalised run rate, the one-off cost to fix what the review found, and what each additional setting adds.
A transaction implications note, written for the lawyers, set out the warranties worth seeking and the consents the systems and the data needed to transfer.
04
Findings and Ratings
Each finding went into one register, rated by its treatment. Red would mean a condition on price. Amber is something the buyer fixes inside ninety days, carries into the transaction documents, or hands to another workstream, priced wherever it can be. Green is closed. Every figure in the report carries its source, or the assumption behind it where there is none.
Anything capable of repricing the deal reaches the client the day it is found.
The Outcome
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The deal team had a direct answer to each of its questions, with the ground for each one. Behind the answers sat one register with every finding rated by what it asked of the terms, so the investment committee could see in one place what would touch the price, what belonged in the transaction documents and what was spend after completion.
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The lawyers had the contract and renewal register and the transaction implications note to draft from. The buyer had a remediation roadmap with a named owner and a target date against each item, and a cost schedule to carry into the operating model.
What the review found is the client’s and stays with them. The deal completed.
Key InsightA group built by acquisition carries its history in its systems. What a buyer needs to know is whether the numbers those systems report can be evidenced underneath, because the funding income rests on them. Two weeks is enough to answer that when the reconciliation runs on the funder’s own record.
Engagement durationTwo weeks.
DeliverableInvestment committee report answering the deal team’s questions, with a contract and renewal register, a cost schedule, and a transaction implications note for the legal advisers.