Integrated Due Diligence: The Mousetrap

Most of the time in diligence, the type of technological disruption that a private equity client might face in an investment is known.

When I was making deals in the pay phone industry, for instance, we not only saw cell phones coming, we owned a few cell phones ourselves. And when we were making deals on yellow-page ads, we had Internet connections in our homes and could see how the web would change the advertising industry as we knew it.

What surprised us, though, was how quickly these technologies caught on, and in recent years, these technological tipping points have been coming faster and tilting harder. Software is no longer just eating the world; it's binge eating the world. It's never been harder to predict which industry it will swallow up next, and it's also more critical than ever for PE firms to figure this out.

“That's why I think one of the skills in diligence nowadays is to understand the tipping points,” says Christophe De Vusser, who leads Bain’s Private Equity practice in EMEA and keeps a vigilant, globe-spanning lookout for new and disruptive technology.

“With tipping points, we mean situations where all of a sudden a trend that was on a slow penetration curve gets removed, and the penetration curve accelerates, and the old technology disappears and the new technology comes in.”

Build a better mousetrap, and the world will beat a path to your door, as the old saying goes. But today, more than any other time in history, you can actually see the world coming, before it tramples your deal underfoot.

In part three of our series on integrated due diligence, Christophe explains how you can spot the better mousetrap and predict the moment the world will take notice. (And I'm not just talking metaphorically here. We're really going to discuss high-tech mousetraps.)

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