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Private Equity: History, Governance, and Operations, Second Edition by ADAM A. WADECKI, JAMES P. MARTIN, LOUIS W. PETRO, HARRY CENDROWSKI

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Chapter 17

Performing Manufacturing Due Diligence Assessments

Harry Cendrowski

Adam A. Wadecki

Introduction

An extremely important—and sometimes overlooked—aspect of private equity (PE) investment due diligence is the portion that focuses on the operations of a manufacturing firm. While many financial buyers will often pore over the numbers, it is also important that the buyer thoroughly understand the current state of a target firm's manufacturing operations prior to purchase. Along these lines, visits to each of the company's facilities will provide the buyer with great insight into the efficiency of the target's plants. These visits need not require a large amount of time. In some cases, even an hour-long tour can provide sufficient information for a detailed analysis.

Performing the Assessment

After introducing the tenets of several manufacturing processes and philosophies in a previous chapter, we now describe a detailed methodology for performing manufacturing plant assessments. Although plant assessments do not require a significant amount of time, experience is required in order to perform them proficiently. The best way to learn how to properly assess plants is to actually perform the task.

A facility tour is the first step in performing an assessment. The tour will demonstrate to the analyst how the facility is run, in addition to visually conveying its strengths and weaknesses. Notes should not be taken by assessors while on the tour. This can be especially distracting, ...

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