Private equity research is the backbone of successful dealmaking. In an industry where timing, accuracy, and insights separate top performers from the rest, a rigorous approach to research helps firms source better opportunities, mitigate risk, and create value post-close.
In this article, we break down every aspect of private equity research — from building a repeatable process to evaluating deals, funds, and exit strategies. We also explore the tools, best practices, and challenges that today’s investment teams need to navigate private markets.
Private Equity Research Process
A structured research process is essential to success in private equity. It helps investors stay focused, reduce risk, and make more informed decisions. With so many moving parts, a repeatable research framework keeps efforts aligned and efficient.
The private equity research process typically follows these key steps:
- Defining research objectives: Set clear goals based on investment strategy, target industry, or specific deal criteria.
- Gathering data and information: Collect relevant data from primary and secondary sources, including proprietary databases, industry reports, and company websites.
- Analyzing and interpreting data: Identify patterns, evaluate financial metrics, and benchmark targets to better understand opportunities.
- Conducting due diligence: Validate information across legal, financial, operational, and strategic areas to assess risk.
- Formulating recommendations: Translate insights into investment theses, target lists, or outreach strategies.
- Monitoring and updating: Track changes in market conditions, deal flow, and company activity to refine ongoing research.
Each of these steps contributes to a comprehensive, end-to-end approach that empowers private equity teams to source better deals and act with confidence.
Define Research Objectives
Setting clear research objectives is the foundation of any effective private equity strategy. These objectives guide every subsequent step in the research process, ensuring that efforts stay aligned with the firm’s broader investment goals.
Start by outlining your investment thesis, including what types of companies you’re looking to invest in, why, and at what stage. Define your firm’s risk tolerance, whether that means focusing on stable, cash-generating businesses or taking on higher-growth, higher-risk opportunities. Clarify the industries or verticals that best align with your expertise, network, and current portfolio strategy.
For example, a firm may define a research objective as, "Identify founder-owned software companies in the healthcare space with $5M–$15M in annual recurring revenue and low customer churn, as potential platform investments for our next fund."
Having well-defined objectives allows private equity teams to be more selective and efficient in their sourcing efforts. It also provides a consistent framework for evaluating potential deals and determining which opportunities are worth pursuing.
Gather Data and Information
With research objectives in place, the next step is collecting relevant data to inform your strategy. Comprehensive data gathering helps you understand the market, identify high-potential targets, and uncover insights.
This stage involves pulling information from a mix of primary and secondary sources. Industry reports and market research provide valuable context around macro trends, emerging sectors, and competitive dynamics. Company websites, press releases, and investor presentations offer insight into a target’s positioning and recent activity. Expert opinions, whether from advisors, sector specialists, or operating partners, can add nuance and reveal signals that raw data might miss.
Private equity teams should also use tools like AI-powered search engines, deal databases, and CRM integrations to surface companies that match their criteria. The goal is to gather enough high-quality, relevant data to move into the analysis stage with confidence.
Analyze and Interpret Data
Once data is gathered, the next step is to make sense of it. This is where raw information is transformed into actionable insights that guide investment decisions.
This analysis typically draws on several core methods to evaluate opportunities from multiple angles:
- Financial modeling: Teams build models to project future performance, assess cash flow stability, and understand the capital structure. These models help estimate returns under various scenarios and stress-test assumptions.
- Valuation analysis: Private equity professionals benchmark potential targets against public comps, precedent transactions, and discounted cash flow (DCF) models to determine fair market value. This step is essential for identifying undervalued opportunities — or walking away from overpriced ones.
- Risk assessment: Analysts look for red flags such as customer concentration, weak margins, or volatile revenue streams. These insights help prioritize targets and guide follow-up research or due diligence.
Together, these methods form a well-rounded view of a company’s financial health, growth potential, and fit with the firm’s strategy.
Conduct Due Diligence
Due diligence is the step where initial insights are validated and risks are closely examined. It’s a critical phase that can make or break a deal.
At this stage, private equity teams take a deeper dive into the target company’s operations, financials, legal standing, and strategic positioning. One of the main objectives is assessing the management team, including their track record, leadership style, and alignment with future growth plans. A strong leadership bench can significantly influence the long-term success of the investment.
The private equity team also evaluates their target company’s business model in detail. Investors look for predictable revenue streams, defensible market positions, and sustainable margins. Relations with key customers and suppliers are closely analyzed for potential risk.
Another top priority is understanding growth potential. This includes assessing total addressable market, expansion opportunities, and how scalable the company’s infrastructure is. Due diligence provides the clarity needed to confirm or revise valuation assumptions and finalize deal terms with confidence.
Formulate Recommendations
After due diligence is complete, private equity teams synthesize their findings into actionable recommendations. These conclusions guide whether to move forward with a deal, negotiate new terms, or walk away entirely.
Investment teams distill insights into clear advice for decision-makers, outlining the case for or against an acquisition. Recommendations typically include proposed deal structure, expected returns, and key risks to monitor. This is also the point where teams define contingency plans and mitigation strategies, such as how to manage downside scenarios or address weaknesses uncovered during diligence.
Whether it's greenlighting a platform investment, identifying specific add-on opportunities, or flagging red flags that outweigh upside potential, recommendations transform research into action. This step ensures the investment decision is grounded in facts, not assumptions.
Monitor and Update
Research doesn’t stop once a deal is made or passed on. Ongoing monitoring ensures private equity firms stay aligned with market conditions, competitive shifts, and company performance over time.
Firms should regularly revisit and refresh their data, tracking both macroeconomic indicators and company-specific metrics. Monitoring portfolio companies helps ensure they’re hitting key milestones. And keeping tabs on the broader market reveals emerging risks or new opportunities.
Periodic updates to research assumptions and investment theses help maintain relevance and accuracy. Whether it's a sudden shift in industry dynamics or internal performance falling short of expectations, adapting research in real time is essential.
Tools and Resources for Private Equity Research
Executing a thorough research process requires the right tools. From data gathering to deal evaluation, having access to robust resources makes the difference between missed opportunities and smart, timely investments.
Key categories of tools and resources include:
- Software platforms: These tools help identify targets, gather company intel, and streamline the sourcing process. For example, Grata provides investment-grade private market data and powerful, proprietary AI to enhance every step of the dealmaking process. Grata users can discover new targets, streamline diligence workflows, and connect with other dealmakers — all in one user-friendly platform.
- Financial modeling and analytical tools: Excel remains important for building financial models. Some firms also use purpose-built software for valuation, scenario analysis, and portfolio modeling.
- Industry reports and market research: Reputable providers like Grata, Pitchbook, Preqin, CB Insights, and IBISWorld offer sector-level insights, benchmarks, and trends that help validate a thesis and benchmark opportunities.
- Expert networks and advisory services: Services like GLG or AlphaSights connect firms with subject matter experts for first-hand insights, often on niche or emerging topics.
- Networking opportunities: Conferences, trade shows, and M&A events offer dealmakers a chance to uncover leads, test hypotheses, and stay current on market sentiment. Grata’s Conferences & Events tool enables dealmakers to find relevant industry events and search attendee lists so they can make the most of their time.
Each of these tools enhances the depth and accuracy of private equity research. They help investors move faster, ask better questions, and ultimately, make more confident investment decisions.
Importance of Private Equity Research
Private equity research is more than a front-end step in the investment process — it’s a long-term value driver. Comprehensive research lays the groundwork for better deals, smarter portfolio management, and stronger returns. It offers several benefits:
- Risk mitigation through thorough analysis: Research enables firms to uncover red flags early, avoid overpaying, and reduce exposure to hidden liabilities. A structured process helps reduce risk before firms deploy their capital.
- Gaining a competitive edge with comprehensive research: Private equity is a fast-moving, competitive space. Teams that invest in robust research are better positioned to uncover proprietary deals, move quickly, and win in competitive processes.
- Enabling informed decision-making backed by data and insights: Accurate, timely information strengthens investment committee discussions and empowers deal teams to make decisions rooted in evidence, not assumptions.
- Optimizing portfolios by balancing risk and return: Research continues post-deal, informing how firms allocate capital, manage risk, and make strategic decisions that drive portfolio value.
- Identifying value creation opportunities within portfolio companies: Research helps PE firms understand where operational improvements, strategic add-ons, or market expansion could enhance performance and valuation.
Private equity research should be viewed as a strategic advantage — not a checkbox. It turns information into insight and enables firms to act with conviction at every stage of the investment lifecycle.
Key Components of Private Equity Research
Private equity research is made up of several components. From analyzing macro trends to evaluating management strength, these building blocks work together to inform the overall investment thesis and execution strategy.
Industry Analysis
Industry analysis helps private equity investors understand the broader environment in which a target company operates. It forms the foundation for evaluating market attractiveness and strategic fit.
This type of analysis includes:
- Market size: Assessing the total addressable market and how much share a target company could realistically capture.
- Growth trends: Understanding historical performance and projected growth at both the industry and sub-sector level.
- Competitive landscape: Mapping key players, their market share, barriers to entry, and the threat of disruption from new technologies or business models.
A strong industry position can significantly influence a company’s long-term upside. This makes industry analysis an essential step in identifying where value can be created — and where risks may lie.
Financial Analysis
Financial analysis allows investors to evaluate the economic viability and performance of a potential investment. It involves digging into historical results and projecting future performance to assess profitability, sustainability, and risk.
Key areas of focus include:
- Ratio analysis: Reviewing metrics like EBITDA margins, return on equity, debt-to-equity, and interest coverage to evaluate financial health and capital efficiency.
- Cash flow projections: Forecasting future cash generation to determine if a company can fund operations, repay debt, and support growth initiatives.
- Valuation techniques: Applying methods such as discounted cash flow (DCF), comparable company analysis, and precedent transaction analysis to estimate enterprise value and return potential.
Financial analysis helps private equity teams build conviction around a target’s value and identify where financial risks or upside opportunities exist.
Management Team Assessment
A company’s leadership can have as much impact on investment success as its financials. Management team assessment is a critical part of private equity research, aimed at evaluating the people responsible for executing strategy and driving growth.
This analysis focuses on:
- Leadership expertise: Reviewing backgrounds, track records, and industry experience of executives and key decision-makers.
- Strategic alignment: Assessing whether management’s vision, incentives, and decision-making approach align with the investor’s goals.
- Depth and succession planning: Evaluating bench strength and whether the company has a plan for key talent retention and leadership transitions.
A well-aligned management team can maximize value creation, while leadership issues can stall progress. That’s why this component of research is often given as much weight as financial or operational metrics.
Operational Analysis
Operational analysis digs into how a company functions on a day-to-day basis. It’s designed to uncover inefficiencies, assess scalability, and identify opportunities for margin improvement or performance optimization.
Key elements of operational analysis include:
- Cost structure and efficiency: Reviewing production costs, overhead, and supply chain dynamics to find areas where expenses can be reduced or optimized.
- Processes and systems: Evaluating whether current workflows and technologies support scalability and growth.
- Key performance indicators (KPIs): Analyzing operational metrics such as customer retention, inventory turnover, and capacity utilization.
This analysis often highlights where operational upgrades or process improvements can unlock value.
Exit Strategy Evaluation
Exit strategy evaluation is a forward-looking component of private equity research. It helps investors understand the potential paths to liquidity and return realization before committing capital.
This analysis typically includes:
- Feasibility of exit options: Assessing whether an IPO, strategic sale, or secondary buyout is likely to be viable based on the company’s size, industry, and growth prospects.
- Market timing considerations: Analyzing broader market conditions and trends that could affect the timing and valuation of a future exit.
- Buyer universe mapping: Identifying the types of acquirers that may be interested in the company such as strategic buyers, larger sponsors, or public market investors.
By planning ahead, private equity firms can shape operational and growth strategies to align with the most attractive exit routes.
ESG Considerations
Environmental, social, and governance (ESG) considerations are becoming increasingly important in private equity research. These factors help investors evaluate the long-term sustainability, ethical standards, and social impact of a company’s operations.
This analysis typically includes:
- Environmental impact: Assessing the company’s carbon footprint, resource usage, waste management practices, and exposure to environmental regulation.
- Social responsibility: Evaluating labor practices, workplace safety, and community engagement.
- Governance standards: Reviewing board structure, executive compensation, shareholder rights, and transparency.
Firms that prioritize ESG often enjoy stronger reputations, reduced regulatory risk, and increased attractiveness to future buyers.
Analyzing Private Equity Funds
Fund-level research isn’t just for LPs. It’s a valuable exercise for private equity professionals looking to benchmark performance, refine strategy, or prepare for future fundraising. Analyzing your own fund, or evaluating how it compares to peer funds, can reveal strengths, gaps, and opportunities for improvement.
Key aspects of fund-level analysis include:
- Historical performance metrics: Reviewing track record using key indicators like internal rate of return (IRR) and multiple on invested capital (MOIC) to gauge past performance.
- Investment strategy and diversification: Understanding the fund’s approach to sector focus, geographic scope, deal size, and stage of investment to assess concentration risk and strategic fit.
- Fund structure and terms: Analyzing details such as management fees, carried interest, fund life, and liquidity terms to evaluate alignment between the general partner (GP) and limited partners (LPs).
- Management team expertise: Examining the experience, cohesiveness, and track record of the fund managers and deal teams.
- Risk management practices: Investigating how the fund monitors portfolio companies, adjusts to market shifts, and mitigates downside scenarios.
Comparing a fund’s performance and strategy against industry benchmarks helps contextualize results and highlight strengths or weaknesses. This type of analysis supports smarter capital allocation across fund managers and strategies.
Evaluating Private Equity Investments
When evaluating individual private equity investments, it's critical to apply a structured, criteria-driven approach. Here’s a checklist of key factors to guide the process:
- Business model assessment: Understand how the company generates revenue, its cost structure, and whether its value proposition is sustainable.
- Competitive advantages: Identify differentiators such as proprietary technology, brand strength, or scale advantages that create a moat against competitors.
- Market opportunities and threats: Evaluate the size and growth of the addressable market, trends driving demand, and external risks such as new entrants or regulatory changes.
- Financial review: Conduct a detailed analysis of historical financials, unit economics, profitability, and forward-looking projections. Pay close attention to cash flow and capital efficiency.
- Management and governance: Assess the strength of the leadership team, board composition, and alignment of incentives with investor objectives.
- Growth and value creation strategy: Determine how value will be created — whether through organic growth, margin improvement, geographic expansion, or M&A.
- Exit viability: Consider potential exit paths and timing. Evaluate if the company is a candidate for strategic acquisition, IPO, or secondary sale.
- ESG factors: Review the company’s environmental and social impact, as well as governance practices that may influence reputation, risk, or long-term sustainability.
Conducting thorough due diligence across each of these areas minimizes downside risk and increases the likelihood of identifying investments with strong upside potential. Consistency in applying this framework also enables clearer comparisons across multiple opportunities.
Challenges in Private Equity Research
Private equity professionals often face several challenges that can complicate the process and affect decision-making, including:
- Limited information: Especially in the lower middle market, private companies may lack robust public disclosures or reliable data, making it difficult to form a complete picture.
- Data reliability: Even when information is available, it may be outdated, unaudited, or selectively presented, requiring extra validation.
- Market volatility: Shifts in economic conditions, interest rates, or competitive dynamics can quickly change the viability of a deal or thesis.
These obstacles can lead to missed risks, mispriced deals, or reduced confidence in investment decisions. For example, if a company lacks transparent financial records, teams may underestimate future cash flow risk. Or if macro trends shift suddenly, projected returns may be harder to achieve.
To overcome these challenges:
- Leverage trusted data sources: Use platforms and research tools with track records for accuracy and transparency, such as Grata.
- Collaborate across teams: Cross-functional collaboration can uncover blind spots and provide more holistic insight into a deal.
- Refine methodologies: Continuously update research templates, diligence checklists, and valuation models to reflect new information and lessons learned.
Recognizing these challenges ensures research efforts remain robust and investment decisions stay well-informed.
Best Practices for Private Equity Research
To improve the quality and effectiveness of private equity research, firms should follow a set of actionable best practices:
- Develop a systematic research process: Establish clear objectives, consistent workflows, and a repeatable framework for evaluating opportunities.
- Use multiple data sources: Triangulate information from financial databases, industry reports, expert interviews, and proprietary tools to build a well-rounded perspective.
- Adopt advanced analytical tools: Leverage software platforms, automation, and AI to enhance data reliability, uncover insights faster, and reduce human error.
- Stay current on industry and regulatory trends: Monitor market dynamics and policy changes to ensure research remains relevant and aligned with evolving conditions.
- Encourage collaboration and reduce bias: Involve cross-functional teams to bring in diverse viewpoints and minimize blind spots or overconfidence.
- Maintain data security and confidentiality: Safeguard sensitive information throughout the research and diligence process to protect proprietary insights and meet compliance standards.
- Review and refine regularly: Build in a feedback loop to assess what’s working, improve workflows, and evolve your research methodology over time.
Following these best practices leads to deeper insights, stronger investment theses, and more confident decision-making across the deal lifecycle.
How Grata Can Help
Grata’s end-to-end dealmaking platform helps investors navigate private markets with confidence. Powered by investment-grade data and proprietary AI, Grata enables dealmaking professionals to source deals, streamline diligence workflows, and connect with other dealmakers all in one place.
Find relevant opportunities across the entire middle market. Understand what deals are happening in your target industries — and at what price. Easily size markets, map competitive landscapes, and see trends with Grata’s Market Intelligence tools.
Schedule a demo to learn more.
FAQs
What does a private equity researcher do?
A private equity researcher analyzes potential investment opportunities by evaluating industries, companies, financials, and market trends. Their goal is to identify promising targets, assess risks, and support the investment team with data-driven insights. They also help with portfolio monitoring and exit planning.
How to research private equity firms?
Research private equity firms by examining their fund performance, investment strategy, sector focus, deal history, and team expertise. Use sources like firm websites, industry databases (e.g., Preqin, PitchBook), and news outlets. Reviewing past investments and comparing them to industry benchmarks provides deeper insight into their approach and results.
What is the difference between PE and equity research?
Private equity (PE) research focuses on evaluating private companies for long-term ownership and value creation, often involving active management. Equity research, typically in public markets, analyzes listed companies to make buy/sell/hold recommendations. PE research is deal-specific and strategic, while equity research supports market trading decisions.
Is there equity research on private companies?
Yes, but it’s less standardized and more challenging due to limited public disclosures. Private equity firms, venture capitalists, and some specialized research providers conduct deep-dive analyses on private companies for internal decision-making. These efforts rely on private data sources, proprietary tools, and direct conversations with company leadership.
What is the main objective of equity research?
The main goal of equity research is to evaluate a company’s financial health, growth potential, and risks to inform investment decisions. For public markets, it supports stock recommendations; in private equity, it informs deal sourcing, valuation, and strategy. Ultimately, it aims to drive returns while managing downside risk.
