As discussed in my previous entry, strategic due diligence is essentially a process of “question discovery”. Real issues tend to dwell several questions deep. Your analytical and creative energy must therefore primarily be applied towards discovering those key questions, the questions that will lead to breakthrough insights regarding a target’s potential. To paraphrase Claude Levi Strauss, “The wise man does not provide answers, he rather asks the right questions”.
For these very reasons, I disagree with the practice of fully outsourcing strategic due diligence to an outside consultant. While I do believe that external help can assist with research, analysis and sector-specific data (this is especially true in an era in which information has become commoditized), I also believe that such help should only be utilized once the deal team has developed a solid thesis and has made a serious effort to identify all the assumptions contained in said thesis, whether these assumptions be explicit or implicit. Otherwise, the deal team is keeping itself out of a critical component of deal analysis, and it is in my opinion handing over too critical of a task to an outside party. The obvious risk is for the deal team to end up with great answers to average questions, whereas it is arguably preferable in an investment setting to have average answers to great questions. Would you rather be approximately right or precisely wrong ?
For these very reasons, you can outsource the answers, but you really shouldn’t outsource the questions.