We hope that you enjoy GRAPH Papers™ - our ongoing series covering best-practices for assessing market opportunities and conducting commercial due diligence.
The insights behind these short pieces derive from real-world diligence experience. Our aim is to help our team and our clients develop and apply “standard work” methods that lead to better deal outcomes. Some of the tips will apply to specific sectors or types of asset, but we expect that most will be of interest to everyone in the diligence community – given that so much of what determines deal outcomes ties back to business fundamentals.
If you would like to share your thoughts about our ideas, please reach out to us.
Take a look at the topics covered in past GRAPH Papers™.
Value Gen: Transitioning the Core Business
In search of higher multiples, investors and their advisors are increasingly pressuring companies to transition their core business to match “themes” that earn higher valuations. For instance, businesses that would rightly be described as professional services with just a hintof a technology base – such as a staffing service with a proprietary database – become “technology enabled…
Discovering Repeatable Growth
Over the years, I have heard multiple M&A professionals say “we don’t underwrite hopes and dreams,” by which they mean new tactics proposed, but not tested, by Management (and their bankers). What is not discussed as often are the new tactics that have been tested…but that are destined to work just once. These tactics are what we call unrepeatable growth stimulants, UGS (or just,…
Using Diligence and the Ownership Change to Leverage What Matters to Customers
Conducting commercial diligence that matters should equip the new owner and the leadership team with insights that can quickly make an impact on market share and pricing opportunities (among other opportunities).
Commercial Due Diligence and Value Generation via Network Effects
Many attractive investments are predicated on network effects – these are businesses that connect users, buyers, and/or suppliers. Companies like Visa, eBay, and LinkedIn have famously enjoyed the benefits of network effects to accrue immense, highly durable value. Outside of software, businesses such as recruiting, retailing, media, health provider networks, and many others, enjoy network…
Three Key Steps for Crafting a Robust Value Generation Plan
Value creation ("Value Gen") isn’t easy right now. Average transaction multiples are at their highest level in 10 years. More and more prospective targets have already been through multiple rounds of PE ownership, with the “easy and obvious” value improvements already made. Fewer proprietary deals seem to exist.
Price Sensitivity and the Opportunity to Improve Margins
Most commercial diligence projects will query the channel and the end-customers to measure price sensitivity. Most CIMs will have a graph indicating the degree to which customers are, or are not, sensitive to price – and suggesting room for margin enhancement. However, relying on customers’ or the channel’s expression or “vote” on price sensitivity can lead to false commercial diligence…
Uncovering a Platform Play
The common case: The target asset (i.e., the target company) has a demonstrated track record of running a good business, enjoys healthy margins and some nice growth. The research indicates that drivers of demand are strong and sustainable. But the diligence also surfaces the fact that none of the providers, including the target company, have a materially differentiated solution – and the market…
A Commercial Due Diligence Perspective on Buyer Power
Everyone will be familiar with the concept of “Buyer Power” as described in Michael Porter’s famous framework. Indeed, almost all commercial due diligence exercises include some examination of TargetCo’s customers’ purchasing power – more specifically, the customers’ ability to apply pressure to lower prices or drive improvements in product (and service) quality, features and…
Fruit that’s Ripe for Non-traditional Disruption (and how to diligence the prospect of it)
The Amazon Whole Foods tie-up is certainly throwing more than a couple of mature industries for a loop: food production, logistics and distribution, mass-retail and groceries. Since the announcement (and as of today), Costco lost 17% of its value; Kroger is down 30%; Sprouts is down 24%; Wal-Mart took a hit but seems to be holding its own.
In virtually every CIM and VDD doc that I read recently (for B2B business, at least), an early page highlights a set of corporate logos of the target company’s key customers. Logos for large, well-known businesses are great; logos for significant and “cool” customers – those that are recognized as movers and shakers – are expressed boldly to help create “lift.”