Commercial Due Diligence / strategy

Hi,

What company are you targeting? Consulting or private equity? 

In consulting interviews you may have two types of due diligence cases:

1. Commercial due-diligence of the target company
2. 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:

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)

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!

Hi Anonymous,

as mentioned by Vlad, it would be useful if you could mention the company you are targeting. In general you may need both M&A and corporate finance skills. The best preparation would be to review M&A cases in consulting MBA handbooks (assuming you are considering a consulting company). As from a previous post I wrote, you may follow the approach below:

1. Download some of the main free MBA handbooks available online. I would recommend one of the top business schools (INSEAD and MIT for example have some good ones).
2. Skim the handbooks looking for M&A cases; if they are in readable pdf format, you can find them as simply as searching for specific M&A keywords.
3. Read as many M&A cases as possible, then practice live with peers on PrepLounge; if you still have doubts or can’t see significant progress, you may consider booking an expert session to improve further.

Best,

Francesco