Hi,
What company are you targeting? Consulting or private equity?
In consulting interviews you may have two types of due diligence cases:
- Commercial due-diligence of the target company
- Synergies calculation of two merging companies
1. For commercial DD you can use the following structure:
Market
- Size
- Growth rates
- Profitability
- Segments
- Distribution channels
Competition
- Market shares of competitors and their segments (see the next point)
- Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
- Unit economics of the players (Margins, relative cost position)
- Key capabilities of the players (e.g. suppliers, assets, IP, etc)
Company
- Unit economics (Margins, costs) in current or target markets
- Brand
- Product mix
- Key capabilities
Feasibility of exit:
- Exit multiples
- Exit time
- Existence of buyers
2. For Synergies Calculation you can use the following structure:
- Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
- Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
- Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
- Total synergies potential in $, adjusted by risk (probability of failure)
In private equity interviews, the cases will be much more detailed in financial part. Depending on the company you'll need to:
- Find the relevant information in P&L and Balance sheet
- Do the simplified valuation using NPV: calculate cash flows and make assumptions about growth rate and discount rate
- Do the valuation using comps - you'll have to explain which comps you will use and why
Good luck!
Hello Vlad, thank you for your answer - it is a consulting company (Big Four)