As mentioned in a previous post, doing a Commercial Due Diligence is key to limiting the risks involved in a takeover. A CDD looks at the customers, product pipeline and turnover & margin contribution so as to understand the commercial basis of a company and to anticipate the sustainability of the success. This way, a too strict assessment of the acquisition target (based on e.g. financial or legal factors only can be avoided and the potential added value may be assessed in a more objective manner.
In more concrete terms, the benefits could be summarized as:
1. Increased success rate of the acquisition & closing a better deal
A well-founded analysis of the underlying commercial success factors may quickly reveal the up and downsides of a business plan.
- Factual arguments can be used for negotiations and may lead to a revision (or validation) of the transaction price.
- All stakeholders receive an independent second opinion that is not influenced by the personal motivation(s) of management.
3. Operational efficiency & improvements
- Based on the audit, areas of commercial improvement can be identified, both in the short term (quick wins) and in the long term.
- Direct impact on the topline result by improving or activating the so-called value drivers. Examples: pricing & trading terms, innovation pipeline, go-to-market strategy, gaps in the product portfolio, customer approach, …
It is clear that a commercial due diligence is not just beneficial to your peace of mind (reduced chance of a failed takeover) but also to your wallet (identification of quick wins and upsides).
Written by Jan De Lancker, practice leader Growth Strategies & CDD