Observations on how Financial (PE) and Strategic (Corp Dev) Investors Consider Segmentation Opportunities Differently from One Another
Serving a wide-range of clients, one pattern that I have noticed is the degree to which the strongest Corp Dev groups (the “Strategics”) consider customer segments as a means for asset value creation – and do so in ways that outrun what many Private Equity firms consider.
Building Habits to Reduce Due Diligence Mistakes
Private Equity investing has been described as a combination of art and science, calling on a wide range of disciplines to make good judgements. In that spirit, I wanted to share a few thoughts I use to test my own judgment. They all surround a central question: What am I missing?
Indefensible (Competitive Position)
I’m am 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:
Leading the Witness
Today’s note is a simple – but important – reminder. It’s the old-fashioned echo-chamber: driven by the desire to prove a thesis, over-eager diligence professionals draw confirmatory conclusions by leading the witness.