The Situation
A mid-market PE house with approximately £2bn AUM held a majority stake in a business services group — outsourced facilities management, workforce solutions, and contract catering — with revenues approaching £180m. The investment thesis had been operational improvement and bolt-on acquisition, both of which had been executed successfully over a four-year hold period.
With a strategic sale being considered for the following 18 months, the operating partner conducted an internal review of exit readiness. The financial story was strong. The operational improvements were demonstrable. But the governance infrastructure — the board composition, committee architecture, management information, and documented decision-making processes — had been built to run the business, not to withstand the scrutiny of a buyer’s legal and financial due diligence team.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. The operating partner had seen governance findings slow or reprice exits in two previous portfolio transactions. He engaged Marentis Labs to conduct a pre-emptive governance audit and manage the remediation programme.
The Governance Challenge
Due diligence on a business services company at exit concentrates on a specific set of governance questions that differ from the questions asked during normal regulatory or board oversight:
- Delegation and authority: Can the buyer trace every material decision — capex, contract awards, senior hires — back to a documented authority? Gaps here suggest either undocumented decisions or decisions made outside delegated authority, both of which are red flags.
- Board independence: Does the board have sufficient independent challenge to demonstrate it has not been run purely as a management vehicle for the PE sponsor? A board that cannot demonstrate independent judgement is a governance risk to a new owner.
- Management information quality: Is the MI pack structured in a way that a new owner can inherit and rely on, or is it built around institutional knowledge of specific individuals? MI that cannot be explained without the CFO in the room is a key-person dependency, not a management system.
- People and remuneration governance: Are senior remuneration decisions documented, defensible, and consistent with stated policies? Inconsistencies in this area are disproportionately expensive to explain during diligence.
- Regulatory and compliance posture: In a business services group operating across multiple sectors, are licensing, health and safety, data protection, and employment law obligations documented, monitored, and evidenced?
The operating partner’s internal review had identified concerns in delegation documentation and MI quality. The Marentis Labs diagnostic identified four additional areas of exposure.
Our Approach
The engagement was structured as Pre-Exit GaaS with an 11-month runway before the anticipated commencement of the sale process.
Pre-Mortem Diagnostic (month 1)
The principal applied the Pre-Mortem Diagnostic to the company’s governance documentation, working through each area of a typical strategic buyer’s due diligence checklist and identifying where the current state would produce findings, qualifications, or questions that could not be answered cleanly. The output was a prioritised remediation schedule with each item assigned an owner, a completion date, and a difficulty rating.
Remediation programme (months 2–8)
The principal worked alongside the Company Secretary and the CFO to execute the remediation schedule. Key workstreams included:
- Delegated authority framework: A new group-wide delegation of authority matrix was designed, approved by the board, and implemented across all subsidiaries. All historic decisions above defined thresholds were reviewed and documented retroactively where records existed.
- Board composition: One non-executive director was added with independent credentials, a former operating partner at a listed business services company. The terms of reference for the Audit Committee were rewritten to reflect FRC guidance on independence.
- MI restructuring: The monthly board pack was redesigned around a standardised operating review format. The CFO and COO jointly delivered a structured narrative against KPIs rather than the previous format of entity-by-entity financial tables.
- Compliance mapping: A cross-functional compliance register was created covering health and safety, data protection, employment law, and sector-specific licensing. Gaps in documentation were identified and addressed.
Exit readiness review (month 9)
Before the sale process commenced, the principal conducted a second pass of the governance documentation, this time simulating the buyer’s due diligence adviser. A shadow due diligence report was produced, identifying any residual findings and rating each by materiality.
The Outcome
The shadow due diligence report identified two residual items of low materiality, both related to historic subsidiary-level decisions where documentation had not been retained. Both were disclosed proactively in the vendor due diligence pack with an explanation of remediation.
The buyer’s due diligence report, produced by a Big Four firm, contained no material governance findings. The operating partner noted that governance was raised once during the management presentation and closed satisfactorily within that session.
The transaction completed on the terms originally negotiated. The operating partner subsequently attributed the absence of governance findings as a factor in maintaining price discipline during late-stage negotiations, where buyers sometimes seek to reprice on the basis of diligence findings.
What This Engagement Illustrates
Exit governance preparation is not about creating the appearance of good governance, it is about identifying where governance has been adequate for operational purposes but inadequate for the transparency requirements of a sale process, and remediating that gap with enough time to do it properly.
The common mistake is to begin this work six months before the process starts. By that point, the options are limited: disclose, remediate at speed, or hope the buyer’s advisers don’t find it. Eighteen months of runway allowed this engagement to address root causes rather than symptoms and to enter the sale process with a governance infrastructure that could be presented with confidence rather than managed around.
This illustrative engagement scenario demonstrates Marentis Labs’ Pre-Exit GaaS model. All client details are kept completely confidential for all engagements. To discuss exit governance preparation, schedule a confidential conversation.