The role of consulting in PE has gradually increased from just building strategy at firms acquired by PE funds, to helping in the PE deals from creation to conclusion.
The work by consulting firms in PE space starts from Deal generation, where consulting firms help the PE funds shortlist industries for investment, and then search for appropriate targets. This is followed up by Due Diligence, where the deal is assessed by market forecasting, competitor analysis and customer surveys, done both through primary and secondary research. Due Diligence is done not only to reaffirm the investment thesis, but also to get a third party confirmation to convince the banks to lend. Post acquisition of the target, consulting firms help in devising strategy and improving operations in the company. Also, an important task is preparation done by them for exit, by ideating the exit strategy, preparing the selling documents and pre-qualifying buyers. A consulting firm may be involved in any or all the stages mentioned above.
The private equity industry experienced a chilling downturn in 2009, a glaring contrast from its peak in 2007. The global buyout deal activity, which was of the magnitude of approximately $500 billion both in 2006 and 2007, fell to $81 billion in 2009. As is said, private equity is the harbinger of the future state of the business world, and its recent comparative recovery is a sign of the overturn of the downturn. In fact, in the first quarter of 2010, the deals have been worth $36 billion, a definite improvement over $8 billion in Q1 2009.
Hence with an increasing role of consulting in private equity scenario, the recent pickup in PE industry spells good news for consulting firms.
Reference: Global Private Equity Report 2010, Bain & Company