Commercial Due Diligence

A Commercial Due Diligence (CDD) is a thorough assessment of a target's positioning within its commercial environment. Typically a CDD report would assess the target across the following areas:
1. Market structure, size and drivers
2. Key competitors, market share, basis of competition and barriers to entry
3. Customer and supplier feedback
4. Business plan achievability, key risks and areas for improvement

Why is a CDD valuable?
All deal theses should answer the question: "How will buying this business make my existing business more valuable?" In other words, every CDD is unique because each investor's needs are different, every deal is unique. But the key is understanding these two pieces of the puzzle. Efficacy flows from asking the big questions about a deal from conception and focusing analysis on the few things that truly drive value. What factors result in superior performance and competitive advantage, and are these forces likely to stay in place during the foreseeable future? How dependent is the earnings stream on the existing management team, and what happens if they leave or their incentives change? Has the asset been dressed up for sale? What is the potential exit strategy if things go wrong? An essential part of this process is knowing what you don't know about a target and being diligent in understanding why a business is, or isn't, attractive. Predicting financial outcomes, especially over the long term, is inherently stochastic and frequently depends on assumptions that are foreign to an executive's past experience.

The approach to commercial due diligence is flexible and analytics-driven, incorporating extensive proprietary knowledge and deep industry experience.

This example evaluates a top line projection for two acquisition targets that operate within medical devices. However this example can be used for many industries.

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Key Points

Key Questions Answered

  • What is the historic and future growth expectations per segment
  • What is the current and expected future competitive position
  • What are the expected future earnings
  • What are the most attractive growth options and value creating themes