Quality of Revenue (QoR) Diligence Provides IC-Ready Perspectives on Valuation and Growth: a Case Study
Introduction
Traditional Quality of Earnings (QoE) and market diligence do not assess a company’s go-to-market and pricing capabilities. Quality of Revenue (QoR) diligence provides a fact-based forecast of a company’s revenue performance, supporting greater conviction in bidding, a faster start on the value creation plan, and earlier successful exits.
This case study demonstrates how QoR diligence helped a private equity (PE) firm approach its bid on a B2B SaaS company with a grounded understanding of the target’s risks and upside potential. QoR identified key growth levers that, if leveraged, could increase the annual recurring revenue (ARR) compound annual growth rate (CAGR) by 50% compared to management’s plan.
The Challenge: Declining New Revenue Growth
A global PE firm was evaluating a market-leading SaaS company with a strong customer base. However, management projected a 20% decline in new subscriber revenue, following two years of declining new account growth. The PE firm engaged Blue Ridge Partners for a three-week QoR assessment to develop a data-driven, independent revenue forecast and post-close growth roadmap. The goal was to ensure the deal team’s bid aligned with the target’s true potential.
The QoR Roadmap: Key Growth Levers to Unlock ARR
Sales Productivity
- A hunter-farmer model had been implemented, but hunter quota attainment was below 50%, suggesting skill gaps.
- Solution: Refine targeting, improve training and enablement, and revise hiring practices.
Pipeline Management
- Deals were lost due to inaction rather than competition. Sales teams struggled to articulate the product’s value.
- Solution: Implement structured sales playbooks and hold sales accountable for conversion.
Marketing & Digital Performance
- Website traffic lagged behind competitors, and key terms did not rank in the top 100 Google search results.
- Solution: Optimize SEO and demand generation while reducing team size for efficiency.
Retention & Upsell Strategy
- Larger initial contracts led to lower churn and higher growth, yet sales representatives focused on small deals.
- Solution: Prioritize larger enterprise customers using a predictive targeting approach.
Pricing & Monetization
- The company lagged competitors in annual price increases, leaving revenue untapped.
- Solution: Adjust pricing strategy to capture higher revenue from existing customers.
Competitive Positioning
- The company considered itself a dominant market player, yet it was not even being considered in many key enterprise deals.
- Solution: Refine brand positioning and market outreach strategies.
The Results: Higher Growth, Lower Costs
Implementing these key levers suggested:
- 50% increase in ARR CAGR
- 19% higher ARR than management’s base case after a typical five-year hold period
- 30% reduction in commercial costs
QoR diligence provided independent, data-backed inputs to the bidding process, allowing the deal team to align its bid with the target’s true commercial potential and enter the hold period with a clear roadmap for accelerating revenue growth.
Conclusion: Why QoR Matters for Investors
Leading PE firms incorporate QoR alongside QoE diligence to enhance conviction in bidding and accelerate post-close growth. QoR provides:
- Greater conviction in bidding
- A faster start to organic growth acceleration
- Mitigation of downside surprises
- Earlier successful exits and higher DPI
The Blue Ridge Partners QoR Solution
With experience in helping over 1,300 PE-owned companies grow faster, Blue Ridge Partners has honed Quality of Revenue diligence—a three-week commercial and pricing diligence assessment based on 16 focused areas of insight. Want to learn more?
- Click here to request a copy of the full version of this case study
- Click here to request a copy of our briefing on Quality of Revenue: The Blind Spot in PE Due Diligence
To learn more about QoR, please reach out to Chris Madaus, Senior Managing Director – QoR Diligence and Business Services Practice Leader, at [email protected] or contact us here.
