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.”
Indefensible (Competitive Position)
I’m fairly certain that just about every commercial diligence assignment conducted is going to include measurement of the asset's commercial strength relative to customer needs and expectations, and relative to perceptions of competitors and alternatives.
Available Market Size
Why Large Markets Can Sometimes Feel Very Small (and why Addressable Market is insufficient) We’ve written before about the need to clearly define markets to inform accurate sizing. But even with the clearest possible definition, one other piece of analysis is critical, and is often overlooked – quantifying what we like to call the Available Market Size.
Strength of Demand vs. Strength of Brand
What is more important when looking at a deal: the strength of demand drivers, or the strength of the target company's brand equity? With rare exception, Demand – not Choice (brand equity among suppliers) – is more fundamental to a successful acquisition outcome.
Many Private Equity deals involve a “platform and add-on” play – predicated at least in part on “bigger is better”. Among the various benefits of consolidation, some of the most commonly cited value gen opportunities relate to bundling and cross-selling. Just this year, we’ve worked on deals from building products to processed meats where this has been a key part of the investment…
When Things aren’t Quite what they Seem - Distressing Commercial Due Diligence Close-calls
I thought I’d share some instructive discoveries we’ve had in commercial due diligence recently. I’m curious to hear yours. If you’re inspired, send me a quick reply with a couple of diligence events that surprised you (and that you hopefully caught). Here are a few from the past year:
A Quick Follow-up on Market Definitions
In an earlier GRAPH Paper™, my partner James referenced how important it is to accurately define the market when it comes to market sizing requirements. Per that GRAPH Paper, “Having clear definitions that everyone on the deal team is aligned on is essential.” Beyond supporting market sizing, being clear on the market definition helps the team better understand the target asset itself, and…
Sizing Up Bad Market Definitions
Reflecting on 20 years of investing, one investment professional recently remarked to us, “When I think about what we’ve gotten wrong in the past, the worst times have been when we believed we had a bigger market size than we really did. There’s just nothing you can do...the company just runs out of room for growth.”