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C-Suite Review

C-Suite Financial Services Review: Doing your diligence: Monitoring of portfolio companies

Buckley C-Suite Financial Services Review

John C. Redding, Jessica L. Pollet, Frida Alim

Federal regulators have historically shied away from pursuing claims against private equity and venture capital firms for the activities of portfolio companies, but enforcement actions brought by the Consumer Financial Protection Bureau and the Department of Justice within the last year signal a potential change in approach. The actions make clear that due diligence should not be considered (or relied upon as) a one-time, transactional effort, but as an ongoing discipline through which private equity firms monitor the operations of portfolio companies in highly regulated industries such as health care or consumer finance. Private equity firms should therefore consider periodic evaluations of their portfolio companies — including an assessment of their own involvement in the activities of these companies — to supplement acquisition-related due diligence.

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