Commercial Due Diligence: The Key to Understanding Value in an Acquisition

by Howson,Peter

• ISBN13: 9780566086519
• ISBN10: 0566086514
• Format: Hardcover
• Copyright: 2006-05-28
• Publisher: Routledge

Summary

Traditionally due diligence has been concerned with legal and financial investigations, where legal would include everything from property to intellectual property to anti-trust. Both legal and financial due diligence are concerned with the past, whereas the true value of a business is based on its future performance. Commercial due diligence looks at the trends in the market in which the target company operates and at the target company's competitive position. By putting the two together and combining an assessment of management's ability to deliver, the would-be acquirer can come to a robust view of future performance and therefore of value. Peter Howson's follow up to his earlier book, Due Diligence, shows how to go about collecting and analysing market and competitive data on target companies so that would-be investors can understand their true value and thereby reduce the risk of an acquisition failing.

Table of Contents

List of Tables	ix
List of Figures	xi
Introduction	xv
PART I: THE BASICS
1 What's It All About?	5	(28)
What is CDD?	9	(4)
Market due diligence	13	(2)
Why due diligence is badly done	15	(1)
Using due diligence to reduce risk	16	(2)
A definition of CDD	18	(4)
Overlap with financial due diligence	22	(9)
Applications of CDD	31	(1)
Conclusion	31	(2)
2 Getting Started	33	(16)
Is CDD needed?	33	(4)
Where do we start?	37	(1)
Who should carry out the work?	38	(1)
Selecting CDD advisers	38	(2)
Planning the work	40	(1)
The CDD team	41	(1)
Timetable	41	(1)
Fees	42	(1)
Good CDD practice	43	(1)
Conclusion	44	(5)
PART II: ANALYTICAL TECHNIQUES
3 Which Market is the Target In?	49	(24)
The basics	49	(1)
Differentiation and segmentation are two totally different things...	50	(2)
...And strategic and operational segmentation are not the same things either	52	(4)
Strategic segmentation	56	(9)
Products and services that go into the market	65	(2)
Market sizing	67	(4)
Conclusion	71	(2)
4 Industry Attractiveness	73	(26)
Do not forget your basic economics	73	(7)
Analysing industry attractiveness	80	(13)
Other ways of classifying industries	93	(3)
Forecasting industry profitability	96	(1)
Conclusion	97	(2)
5 Which Customers is the Target Serving?	99	(12)
Operational marketing segmentation	99	(1)
Demographic	100	(4)
Psychographic	104	(1)
Purchasing approach	105	(2)
Situational factors and personal characteristics	107	(1)
Conclusion	108	(3)
6 Ability to Compete	111	(36)
The analysis of resources and capabilities	111	(12)
Can competitive advantage be sustained?	123	(10)
Brand strength	133	(4)
Distribution channels	137	(4)
The use of IT	141	(1)
Ability to compete over the industry life cycle	142	(3)
Conclusion	145	(2)
7 Competitor Analysis	147	(8)
Some common myths	147	(1)
What we want to find out	148	(1)
Identifying the competitor's objectives	149	(4)
Conclusion	153	(2)
8 The New Reality	155	(30)
The beleaguered company	155	(1)
Customer segmentation	156	(19)
The target's approach	175	(1)
The sales force	176	(1)
Beyond satisfaction ratings	177	(3)
Using the target's customer satisfaction measures	180	(1)
Contract-based businesses	181	(1)
Conclusion	182	(3)
9 COD in Special Situations	185	(28)
New technologies	185	(13)
Diversification	198	(1)
Assessing new business models	199	(2)
JVs and alliances	201	(7)
Declining industries	208	(2)
Recovery plays	210	(1)
Conclusion	211	(2)
10 Assessing Management	213	(20)
Objective	213	(10)
Reporting	223	(5)
Communication with management	228	(1)
Culture	228	(3)
Conclusion	231	(2)
11 Using the Output	233	(36)
Always keep the bigger picture in mind	234	(7)
Spreadsheet modelling	241	(13)
Valuation	254	(7)
The integration plan	261	(1)
Conclusion	262	(7)
PART III: COLLECTING AND PRESENTING THE DATA
12 Structuring and Planning	269	(30)
Understanding the question	269	(2)
Issue analysis	271	(8)
Collecting the data	279	(11)
Dealing with obstacles	290	(4)
Other planning tips	294	(3)
Conclusion	297	(2)
13 Interviewing	299	(24)
Questionnaire design	299	(13)
Tips for successful interviewing	312	(3)
Competitor interviewing	315	(3)
Other forms of interviewing	318	(3)
Conclusion	321	(2)
14 Writing the Report	323	(18)
Start by putting the report in context	323	(1)
Keep the structure logical	323	(1)
Give the answer via a logical hierarchy of issues	324	(1)
Cover one issue at a time	324	(1)
Group issues to make understanding easier	325	(4)
Writing style	329	(7)
Make sure individual contributions are consistent	336	(1)
Produce an interim report	336	(1)
Vendor CDD reports	336	(1)
Conclusion	337	(4)
Appendix A Checklists	341	(24)
Checklist 1: CDD briefing	341	(2)
Checklist 2: A full CDD exercise	343	(4)
Checklist 3: Marketing	347	(4)
Checklist 4: Five Forces	351	(4)
Checklist 5: Identifying resources and capabilities	355	(2)
Checklist 6: Threats and opportunities	357	(1)
Checklist 7: Determining KPCs	358	(1)
Checklist 8: Commonly sought management competencies	359	(2)
Checklist 9: Competency-based interviewing	361	(1)
Checklist 10: Sample questions for competency-based interviews	362	(2)
Checklist 11: Things that can go wrong on CDD projects	364	(1)
Appendix B Report Writing	365	(26)
Words and phrases to be avoided in report writing	365	(2)
Presenting numbers	367	(22)
Style and report writing	389	(2)
Index	391