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Sidi

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Commercial due diligence

Could someone share some practical experience in terms of setting up commercial due diligence in real life? For example, mile stones, timelines, what information should be reqruired from clients, how to build storyline etc?

Thanks a lot!

Could someone share some practical experience in terms of setting up commercial due diligence in real life? For example, mile stones, timelines, what information should be reqruired from clients, how to build storyline etc?

Thanks a lot!

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Hi!

A commercial due diligence is the process a corporation or PE firm undertakes to assess a target company's commercial attractiveness. It is an analysis of the target company performance and potential problems that may occur as a result of an acquisition.

Generally speaking, there are four major sources of value that can be unlocked by acquiring a business:

  1. Achieve synergy benefits. Synergies come from increased utilisation of resources and often are realised by consolidation of assets or reductions in headcount within the combined entity.
  2. Achieve revenue growth by introducing new products or services, accessing new markets, entering new geographies or increasing the routes to market for existing products.
  3. Achieve a strategic advantage that presents new pathways to future growth. This may include industry disruption enabled by acquired technology, extracting value from underutilised assets, or acquiring capabilities that allow level shifts.
  4. Transform a company’s business model by restructure, financial engineering or changes to management structure.

The commercial due diligence provides a full overview of the target's potential to create post-acquisition value against the backdrop of its internal and external environment.

The overall process can be roughly divided into the following stages:

  1. A corporation or private equity firm will liaise with a third party to conduct the report on their behalf.
  2. The third-party then prepares a commercial due diligence report, outlining the information required for a potential acquisition.
  3. This report is then reviewed the prospective buyer, in conjunction with other reports, before a final decision is made.

Typically the report will include the following information:

  • Review of the target's business plan and predictions
    • How realistic are these targets?
    • How achievable is the business plan?
  • Research and assessment of the market
    • Where is the target positioned within the market?
    • Where is the market heading? How could this affect the value of the target company?
    • What are the trends in the market?
  • Analysis of competitors and customer base
    • Who are the strongest and weakest competitors?
    • How does the target perform against its competitors?
    • What is its customer profile?
  • Revenue and gross margin modelling
    • Will the target reach its projected revenues?
    • How much can the target company be expected to make over a set period of time?
  • Pricing and margins
    • How have average prices fluctuated historically?
    • What is the forecast for prices in the future?

Cheers, Sidi

Hi!

A commercial due diligence is the process a corporation or PE firm undertakes to assess a target company's commercial attractiveness. It is an analysis of the target company performance and potential problems that may occur as a result of an acquisition.

Generally speaking, there are four major sources of value that can be unlocked by acquiring a business:

  1. Achieve synergy benefits. Synergies come from increased utilisation of resources and often are realised by consolidation of assets or reductions in headcount within the combined entity.
  2. Achieve revenue growth by introducing new products or services, accessing new markets, entering new geographies or increasing the routes to market for existing products.
  3. Achieve a strategic advantage that presents new pathways to future growth. This may include industry disruption enabled by acquired technology, extracting value from underutilised assets, or acquiring capabilities that allow level shifts.
  4. Transform a company’s business model by restructure, financial engineering or changes to management structure.

The commercial due diligence provides a full overview of the target's potential to create post-acquisition value against the backdrop of its internal and external environment.

The overall process can be roughly divided into the following stages:

  1. A corporation or private equity firm will liaise with a third party to conduct the report on their behalf.
  2. The third-party then prepares a commercial due diligence report, outlining the information required for a potential acquisition.
  3. This report is then reviewed the prospective buyer, in conjunction with other reports, before a final decision is made.

Typically the report will include the following information:

  • Review of the target's business plan and predictions
    • How realistic are these targets?
    • How achievable is the business plan?
  • Research and assessment of the market
    • Where is the target positioned within the market?
    • Where is the market heading? How could this affect the value of the target company?
    • What are the trends in the market?
  • Analysis of competitors and customer base
    • Who are the strongest and weakest competitors?
    • How does the target perform against its competitors?
    • What is its customer profile?
  • Revenue and gross margin modelling
    • Will the target reach its projected revenues?
    • How much can the target company be expected to make over a set period of time?
  • Pricing and margins
    • How have average prices fluctuated historically?
    • What is the forecast for prices in the future?

Cheers, Sidi

(edited)

Thank you Sidi, this is really helpful! Best regards. — W on Jan 20, 2019

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