Commercial due diligence

Question

Hello people,

I have been working at a boutique consulting firm, mainly doing strategy work but haven't done CDD project yet. Now my company is starting Private Equity practice and I have been asked to become a member of this practice.

I have researched on Google and found generic information like what is CDD and why do PE firms conduct it but I would like to know the whole process which I was not able to find it on the internet. People have shared their experience in very short and haven't elaborated on the process like how to conduct primary research, what to keep in mind while taking expert interview etc.

Can anybody please share some resources here or share their experiences?

Answer 1

Hi there,

Be careful…

While becoming a member could represent great growth opportunities, it's going to be a nightmare. DD is hard. And having leadership that hasn't done it before and in an un-established practice is almost guaranteed to have crazy hours, over-promises on projects, changing directions, etc.

I just want to make you aware of that. It could be an amazing opportunity to carve out a name + role. But it's also very likely to be nightmarish.

Here are some prior Q&As: https://www.preplounge.com/en/consulting-forum/what-are-the-differences-between-cdd-and-vdd-with-regards-to-due-diligence-12397

https://www.preplounge.com/en/consulting-forum/commercial-due-diligence-3284

https://www.preplounge.com/en/consulting-forum/what-is-due-diligence-in-consulting-projects-in-what-major-ways-is-dd-different-form-other-types-of-projects-3394

Answer 2

Hi, I can confirm due diligences are hard-working projects but really fascinating. They last a few weeks, so you have the chance to do 10 different projects per year with a unique perspective about the business in the region. At the same time, they go deep into key numbers and trends of different sectors. making you a sort of expert.

Best,
Antonello

Answer 3

Hello,

I did not work on DDs when I was a consultant, but agree with others here based on what I saw at my office that they tend to be very intense time-wise!

Answer 4

Hi,

PE work is intense. The clients are very demanding, the project timelines are tough, and typically the bar for output quality is extremely high as well.

There will be a learning curve and a steep one, both because you are new to PE work but also because it is a new practice area. But if the leadership is strong, there will still be strong growth and progression opportunity.

I'm speaking from experience having helped to build BCG's PIPE practice here in SEA.

Answer 5

Certainly, conducting Commercial Due Diligence (CDD) in the context of Private Equity can indeed be a fascinating and intellectually stimulating process. It honestly doesn’t have to be a nightmare, for me it mostly depends on the client served and ultra pragmatism of the manager:

1. Initial Scoping and Research:
- Understand the specific industry or sector relevant to the target company.
- Identify key market dynamics, trends, and competitors.
- Assess the scope of the CDD, including the depth of analysis required.

2. Primary Research:
- Conduct primary research, which may involve surveys, interviews, and expert consultations.
- Collect data on market size, growth rates, customer preferences, and other relevant factors.
- Identify potential risks and opportunities within the target market.

3. Expert Interviews:
- Engage with industry experts, customers, suppliers, and other stakeholders.
- Prepare a list of insightful questions to gain deep industry knowledge.
- Assess the credibility and reliability of your expert sources.

4. Competitive Analysis:
- Analyze the competitive landscape, including market share, strengths, and weaknesses of key competitors.
- Understand barriers to entry and competitive strategies in the industry.

5. Customer and Supplier Analysis:
- Evaluate customer and supplier relationships and dependencies.
- Assess the stability of contracts and agreements.

6. Regulatory and Legal Considerations (usually light touch):
- Investigate any legal or regulatory constraints affecting the industry.
- Identify potential risks related to compliance.

7. Financial Analysis:
- Review the financial health and historical performance of the target company.
- Assess revenue and cost structures, profitability, and cash flow dynamics.

8. Risk Assessment:
- Identify and evaluate potential risks and uncertainties in the target market.
- Develop risk mitigation strategies.

9. Synthesis and Reporting:
- Compile all gathered information into a comprehensive report.
- Present findings and insights to the private equity team, highlighting key opportunities and risks.

10. Recommendations:
- Based on your analysis, provide actionable recommendations to the private equity firm.
- Suggest strategies for value creation or potential deal-breakers.

It's essential to maintain a structured approach throughout the CDD process and ensure that your findings align with the investment thesis. While each CDD project may vary in complexity, adaptability and pragmatism in prioritizing tasks can indeed contribute to a smoother and more enjoyable experience.

Warm regards,
Frederic