I need to prepare cases on Operational Due diligence for M&A/Carve out cases.Can anyone help me with the practice

Divestiture cases M&A
New answer on Aug 29, 2019
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ANIRBAN asked on Aug 29, 2019

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Vlad
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Content Creator
replied on Aug 29, 2019
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

Feel free to reach out - I can help you with prep. Here are some tips:

Let's structure a bit the M&A cases. By the type of the client it can be:

  1. Private Equity fund doing an acquisition
  2. The company acquiring another company

At the consulting interviews you may have the following types of M&A cases:

  1. Due-diligence of the target company
  2. Synergies calculation of two merging companies (or synergies with the other company in PE fund portfolio)
  3. A mix of both (Pls check with clarifying questions)

1. For Due Diligence I would use the following structure (It's exactly the structure used on the real consulting projects):

Market

  • Size & Growth rates
  • Profitability
  • Segments & growth rates
  • Regulation

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)

Target Company

  • Revenue and growth rates
  • Profits
  • Unit economics (Product mix, Price per unit, cost per unit)
  • Key capabilities

Feasibility of exit (for PE fund):

  • Are we reaching the target returns?
  • Exit time
  • Existence of buyers
  • Risks

2. For Synergies Calculation you can use the following structure:

  1. 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.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  4. Total synergies potential in $, adjusted by risk (probability of failure)

Good luck!

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Fernando
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replied on Aug 29, 2019
Former Director in Big Four Firms, Operations, M&A and Cash Management Expert

Hi!

I have a lot of experience with the topic (led a practice on this) and would be happy to help.

Best, Fernando

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Vlad gave the best answer

Vlad

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McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School
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