Mergers & Acquisitions: Driving your Business Forward


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This briefing will cover Frost & Sullivan's approach to the commercial due diligence process. Our process is defined as an in-depth analysis of the commercial opportunity (i.e. the target company, focusing on the industry and market in which it operates). The objective is to gain a detailed and comprehensive understanding of the internal and external environment in which the company operates in, to make a sound investment decision.

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Mergers & Acquisitions: Driving your Business Forward

  1. 1. Mergers & Acquisitions: Driving your Business Forward Why is Commercial Due Diligence Important and What Role Does it Play? Ryan Sherring Regional Head of Africa Growth Implementation Solutions May 2014 © 2014 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
  2. 2. 2 Today’s Presenter Ryan brings a wealth of experience in designing and implementing corporate growth strategies across the African continent. Particular expertise in: • M&A (Target Identification, Due Diligence, Post Deal Integration) • Financial Modeling & Valuations • Strategy Design & Implementation • Business Optimisation • Geographic Expansion Ryan has over 9 years of consulting experience with a strong education • MBA • Bcom: Finance & Economics Ryan Sherring Head of Africa Growth Implementation Solutions Frost & Sullivan Follow me on: @rdsherring
  3. 3. 3 Focus Points  Due diligence – context and insight  Mergers & Acquisitions – Overview  How due diligence adds value to Mergers & Acquisitions  How to perform a successful due diligence
  4. 4. 4 The importance of commercial due diligence • Countless business periodicals reference troubling statistics attesting to the seemingly insurmountable difficulties that accompany M&A, as outlined in part below • 75% of larger mergers destroy, rather than create, shareholder value • 50% of companies decline in productivity following a merger announcement • Common pitfalls associated with failed mergers • Acquisitions are expensive! • Integrating the target team into the new entity • Operational complications involved in unbundling or spinning off a company
  5. 5. 5 Overview of M&A Industry analysis / Pre due diligence Target identification Due diligence Business integration 1. Industry analysis / Pre-due diligence: Performing a sector and economic analysis as well as understanding the market dynamics to better understand the potential for businesses in the sector 2. Target identification: Using strong primary and secondary research capabilities, as well and deep industry knowledge to identify and assess potential acquisition targets 3. Due diligence: In depth analysis to confirm all material facts with regards to the acquisition including the potential for growth and profitability 4. Business integration: Review of strategy, identification of best practices and implementation excellence are used to integrate the target with the existing business or improve current operations
  6. 6. 6 Overview of Due Diligence Commercial Due Diligence 1. Commercial due diligence: A detailed and comprehensive analysis gaining an in depth commercial, political, economic, social and regulatory understanding of the industry and market the potential acquisition operates in 2. Operational due diligence: An internal analysis of the potential investments operational resources, assets, processes, policies and procedures, assessment of managements alignment and ability to execute and accomplish the intended strategy for the company 3. Financial due diligence: Can include an audit of the companies financial statements. Typically leverages audited reports to gain detailed insight into the financial health of the company, identifying areas of concern and the valuation of the potential acquisition. 5. Legal due diligence: A focused assessment on all legal aspects of the company determining risks / issues / areas of concern occurring currently, in the future or any previous actions which may result in future consequences. Legal Due Diligence 4. Technical due diligence: The technical analysis of property, machinery, systems, software and skills identifying risks and / or issues. Operational Due Diligence Financial Due Diligence Technical Due Diligence
  7. 7. 7 Commercial Due Diligence Strategic Approach Frost & Sullivan employs a 3 pronged approach to building a comprehensive picture, continuously cross referencing and validating throughout the process. 1. Internal Expertise: The design of the project team takes into consideration industry and process expertise and previous engagements of a similar nature 2. Secondary Analysis: A deep dive into Frost & Sullivan’s internal and subscription databases to build a strong fact foundation 3. Primary Analysis: Telephonic discussions guided by carefully designed discussion guides with senior industry players including suppliers, distributors, etc. Face to face interviews with key people involved in the process including the company’s management, competitors, distributors etc. Gathering information on the target and the industry and market in which it operates is crucial to making sound investment decisions. As such it is important to build a complete picture through cross referencing demand, supply and economic data.
  8. 8. 8 Commercial Due Diligence Strategic Approach • Define principle overarching hypotheses to be answered during the analysis Hypothesis 1: Targeted company has the skills and technical capability and the capacity, and is suitably positioned to take advantage of that growth in the countries focused market Define Scope Market & Macro Economic Analysis Competitor Analysis Customer Analysis Internal Assessment Competitive Analysis Market & Macro Economic Environment Internal Analysis Customer Analysis Opportunity & Strategic Conclusions • Define market scope / industry scope • Focus on the four pillars
  9. 9. 9 Commercial Due Diligence Strategic Approach • High level overview of the global market • Detailed and comprehensive analysis of the focused industry in the specific country / ies • Build economic model • Evaluate projected growth figures against forecast growth levers • Develop a 5 year industry growth forecast projection Define Scope Market & Macro Economic Analysis Competitor Analysis Customer Analysis Internal Assessment
  10. 10. 10 Commercial Due Diligence Strategic Approach • 360̊ Competitor analysis • Profile key competitors • The potential impact of increased competition from other players will be clarified (qualitative) • Impact of competitors entering the market Define Scope Market & Macro Economic Analysis Competitor Analysis Customer Analysis Internal Assessment Support with quantitative information. Should quantitative information be unattainable / unavailable, a qualitative indication should be provided.
  11. 11. 11 Commercial Due Diligence Strategic Approach • Customer analysis and segmentation • Assessment of current customer strategy • Review of key product differentiators/parameters (price, margin, features, etc.) • Consumer preference survey Define Scope Market & Macro Economic Analysis Competitor Analysis Customer Analysis Internal Assessment
  12. 12. 12 Commercial Due Diligence Strategic Approach • Comprehensive review of the business plan to validate / prove assumptions, positions and forecasts made • Assess company’s current value proposition and evolution over the next 5 years • Map business parameters and services against market growth trends and demand • Assess ability to execute the strategy • Conduct discussions with top management to gain insight into the operations within the respective areas Define Scope Market & Macro Economic Analysis Competitor Analysis Customer Analysis Internal Assessment
  13. 13. 13 Conclusion Slide: Key Take-Aways & Recommendations • Define why acquisition suits your growth strategy • Goal Statement • Define objectives of the study • Hypothesis (what are you trying to prove) • Scope • Define the approach • Develop and build toolkit • Cross check and review • Contact us for guidance / facilitation
  14. 14. 14 Next Steps Develop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities
  15. 15. 15 Your Feedback is Important to Us Growth Forecasts? Competitive Structure? Emerging Trends? Strategic Recommendations? Other? Please inform us by “Rating” this presentation. What would you like to see from Frost & Sullivan?
  16. 16. 16 Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter
  17. 17. 17 For Additional Information Ryan Sherring Regional Head of Africa Growth Implementation Solutions (+27) 021 680-3564 Samantha James Corporate Communications Africa (021) 680-3574