Forward Risk Professionals Interviewed by PE Career News
April 30, 2020–Corporate investigations and advisory firm Forward Risk and Intelligence this month announced the opening of its New York City office, expanding beyond its headquarters in Washington, DC. Forward Risk’s New York office places the firm in closer proximity to several of its core clients, and is co-headed by Mike Aber and Mike Seyer. Recently I caught up with the both of them to discuss the growth of the firm and gather some insight into their work with private equity firms.–Publisher David M. Toll
Tell me what brought the two of you to Forward Risk.
We have been working with each other for several years now, most recently leading the investigative intelligence team at a boutique diligence firm. Most of our work there was transactional diligence and pre-M&A work for private equity firms in the middle market.
Forward Risk already had a great team doing deep dives for corporate contests, and we thought that those two practice areas – proxy fights and M&A – fit naturally together. Both require a nuanced, analytical approach, grounded in an economic thesis, and a hunger on the part of the analyst to dig strategically and think creatively. We saw those qualities in our colleagues here at Forward Risk.
You specialize in investigative due diligence. What does this research consist of and how is it used by private equity firms?
To give the short version, investigative due diligence is how we help our private equity clients kick the tires on their investments. Private equity is first institutional money, or buying from one another. There’s no Wall Street coverage or investor calls for the ophthalmology practice down the road. Our clients are the ones that value having as much information at their disposal as possible. That’s where we come in, doing the background research on management’s record, on the company’s operations and human capital. We can provide a good look under the hood by examining the public record, and making independent reference calls to former employees, business partners, and customers. Whatever insight our clients need.
What is the most common mistake you see private equity firms make when evaluating target companies?
It’s actually a mistake in process. Making a bid for a company based only on a PowerPoint deck and notes from management meetings isn’t enough. It isn’t good enough to have the five-year financials and a strong handshake.
This isn’t so much a mistake as a growing pain. You see some of the more experienced private equity firms committing significant resources to their due diligence process. They institutionalize their review of every opportunity they look at, and they engage specialists for every step of the process. And there is a good reason for this. Mistakes are expensive. Mistakes are discrediting, and make it harder to fundraise and to present oneself as an attractive partner to management teams. In the beginning, everyone is confident making deals based on their own research and their gut feeling. And then they get burnt.
How would you describe the frequency with which you find something so serious it kills the deal or, at a minimum, leads to a renegotiation?
It depends on our clients’ individual risk appetites, but it does happen. We have uncovered outright fraud, and there have been reputational risks that have risen to the level of deal killers. But we don’t measure our success by the number of deals our research has killed, or take any pride in needing to tell the client that this one is pencils down. Protecting our clients is our minimum expectation of ourselves.
But our goal isn’t to flush two months of our client’s work down the drain. We’re trying to improve the terms of the deal, to make the partnerships between our client and management teams more constructive. We want to see our research having a positive impact on our client’s ability to execute a successful growth strategy for the company as soon as the purchase agreement is signed.
And how do you accomplish this?
Focused research in the public record, and independent reference calls. Without one or the other, you’re closing your eyes to the whole picture of what kind of company you’re buying. From our perspective, if we are buying a company, we want to know what management brings to the table, their personalities, where they are at in their personal and professional lives, what makes them tick.
But we also want to know as much as possible about everyone on the org chart. Who can be placed in a role of more responsibility? Whose potential can be unlocked if we move them from product to marketing? What’s the company culture? How do we leverage the working relationships that already exist, or create more collaboration among different parts of the company?
More macro, where can the company mature as an organization? How can it capture its next opportunity within the market? A robust diligence process can help answer these questions. This is a value-seeking process, not just a compliance exercise.
What’s next for you and Forward Risk?
Very simply, keep a disciplined focus on our core competencies. We work mostly with hedge funds, law firms, and private equity. These are sophisticated actors who require work that is concise, clearly articulated, and actionable. So the plan is to grow maturely, and continue to hire analysts who are, first and foremost, intellectually curious and who refuse to just check the box. As a firm, we want to be able to look through the eyes of our investor clients, or law partner clients, when breaking down a situation and problem solving. We’re going to stay focused on becoming the best at what we do.