Lean Six Sigma Consulting for Mergers & Acquisitions and Private Equity Firms

Mergers & Acquisition Private Equity Firms USALean process improvement methodologies are crucial when preparing a business for a divestiture. Selling a part or all of the shares of a business always requires the right preparation for due diligence so as to put ‘the house in order’ and develop an appealing offer. In order to improve the operations and key performance indicators (KPIs) of a business prior to being sold, Mergers &Acquisition (M&A) firms typically advise their clients to implement Lean Six Sigma-Continuous Improvement methodologies. Setting up an operational excellence culture within the business during the due diligence process makes a substantial difference at the momentof sale. Once the operations have been improved with the Lean methodology, sellers can present the improved results with tangible KPIs that would make the acquisition more appealing. While observing the sustainability of these good results, private investors or private equity firms will decrease their uncertainty when making an investment decision.

How does Lean Six Sigma help M&A and PE firms?

One of the most important steps that all businesses must take prior to selling or buying shares is the due diligence process. M&A companies typically define the due diligence process as an investigation to be conducted on a business prior to its acquisition. Private Equity (PE) firms also understand due diligence as the business transformation they would like to see in an organization prior to investment. Lean Six Sigma methodologies have been of substantial help in this transformation.

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The workplace organization tool called ‘5S’ is one of the most basic continuous improvement tools offered by lean. During the due diligence process, this 5S tool can be compared to the staging of a house prior to be listed in the market, delivering a positive visual impact to the eyes of potential buyers.

When it comes to evaluating the operations of a business, there are certain KPIs that should always be present. These KPIs will vary with the type of business for sale, but there are examples that are frequently examined:

  • Annual revenue
  • Employee retention
  • Inventory costs
  • Margin per product/service
  • COGS (cost of goods sold)
  • EBITDA (Earnings before interests, taxes, depreciation & amortization)
  • OEE (Overall equipment effectiveness)
  • Rejection rates (& scrap rates)

And the list is too long to continue. Still, lean offers a wide range of tools to address and improve each of these KPIs which are crucial to evaluate at the due diligence process. For instance, the application of the pareto principle during a root cause analysis will help to determine the subset of reasons responsible for the majority of inefficiencies such as high turnovers, high rejection rates, or low performance rates per line of products/services. Process improvement tools such as rapid changeover will deliver value by addressing setup times that will positively impact cycle times and overall efficiency. In many cases, up to 80% of the improvements identified in a due diligence process come from a well detailed process map. This tool visualizes multiple inefficiencies that would otherwise pass unnoticed, such as redundancies, poor flow of materials or information, excessive movement (spaghetti diagrams), etc.

Both M&A and PE firms have observed firsthand the substantial benefits of creating value through lean transformation as a crucial step in the due diligence process. This lean preparation is indispensable when buyers want to eliminate any chance of finding skeletons in closets after having closed a deal.

There are additional tools that can aid in improving overall efficiency, such as an RCCA labor tracking solution we offer, which is an application for collecting data or for tracking labor or KPI efficiency.

Lean Six Sigma Training & Implementation

At AMSaxum we provide onsite corporate training on lean six sigma/continuous improvement methodologies and help our clients with the implementation of process improvement projects. There are government grants available in the USA to cover the cost of corporate training.

For more information on continuous improvement and government funding within the M&A and PE sector call AMSaxum at 905-315-6847 or contact us here.

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