Conducting a due diligence background investigation of an individual is a great first step when entering into a business relationship with someone. However, often a search and review of public records does not tell the full story and public records alone cannot shed light on a person’s skills (or lack thereof) and reputation with colleagues, investors, co-directors and direct reports, among others. The following scenario is a prime example of when a public records-only investigation is simply not enough.
The Problem
A private equity firm reached out to us prior to an acquisition to vet the target’s management team. 221B’s public records research of the company’s CEO identified no red flags. However, our client had heard rumors in the marketplace of the CEO having a temperamental management style. After public records research uncovered no issues, our client requested we extend our investigation to include source inquiries with individuals who had known the CEO professionally and personally.
Our Solution
At the onset of our public records investigation, we knew there was a good chance our client would want to supplement our research with source interviews. Given this insight, throughout our phase one assignment, we made note of individuals who may be able to provide commentary or feedback about our subject. These sources were identified through media reports, professional networking profiles, securities filings and company review websites, among others. We identified more than a dozen potential sources and were ultimately able to conduct substantive interviews with five of them.
While some sources had positive comments about our subject, four of the five individuals had largely negative experiences with our subject. One source, a former friend of the subject (who was also an early investor in our subject’s business) described a falling out between the two after our subject began acting “erratically” in personal and professional settings. Former colleagues described our subject as “chaotic,” “lacking focus,” “an overbearing micromanager” and “not self-aware.”
The Outcome
Our client’s initial concerns were validated by supplemental interviews with sources. Armed with this additional information, they were able to structure the deal so the target company’s CEO would not stay on in a leadership role following their acquisition.