Case Study: pre-due diligence - Selection of slides

Objective of the collaboration

•

Situation: ‘The Client’, European heating supplier, would like to evaluate the convenience of acquiring ‘The Target’, leading supplier in adjacent market segments where ‘The Client’ is not present

•

In this sense, the overall aim of the collaboration would be: 1.

To help ‘The Client’ identify and evaluate the current and future trends in the markets where ‘The Target’ is competing

2.

To help ‘The Client’ asses the fit of the acquisition in their long term strategy

3.

To help ‘The Client’ to review ‘The Target’s’ Business Plan (if any) and to identify the main risks and opportunities it will face if the acquisition takes place

4.

To build up the investment and business case for the acquisition

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC

2

Proposed methodology BMC proposes a three step methodology

1

2 Analysis of the Target’s markets

3 Analysis of the target positioning, weaknesses and strengths

Acquisition coherence

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC

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Example of output: market assessment By type, growth comes from high-end Products C and D, but they do not compensate the decline in standard Product A Market breakdown by product in Country 1

Product A TYPE

Product A

VOLUME VALUE % % (000 CAGR CAGR (€million) VOLUME VALUE units) 2006-12 2012-16 831.6

69

84.1%

69.5%

-9%

-3%

TREND

-Product A are predominant, but is slowly losing share. ...

-Product D, ...

Product D

51.4

13.7

5.2%

13.8%

-8%

1%

Product G

13.5

1.3

1.4%

1.3%

-1%

-3% ....

Product H

8.5

2.9

0.9%

2.9%

-2%

1% ...

Product I

1.8

0.2

0.2%

0.2%

0%

-3%

Product C

82

12.2

8.3%

12.3%

-8%

2%

...

Source: BSRIA WMI, BMC analysis This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC

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Example of output: potential benefits of the acquisition Potential benefits of the acquisition seem to be very limited

2.

3.

4.

"The Target" position in Product A, Product B & Product F

No benefits expected from potential system sales of Product A and Product E Limited benefits from better positioning in the channel in Country2 to sell Product E (better than Competitor3 but far from Competitor1 and Competitor2) Opportunity in Product B, but “the Target’s” strengths and position in the Product B market is not good Opportunity in Product F, but "The Target"’s strengths and position in the Product F market is not good

15,0%

PROFITABILITY

1.

10,0

5,0

Product B

ProductA 85%-95% 40,0%

0,0 -5,0

0,0

5,0

10,0

15,0%

GROWTH

Given that potential benefits seem to be very limited, apart from "The Target"’s current profit, it appears that any acquisition should be mainly based on price

NOTE: PROFITABILITY AND GROWTH: BMC analysis based on industry estimates. BUBBLE SIZE: BMC estimate on relative weight of sales of "The Target" by product family

Source: BMC analysis This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC

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Example of output: Investment assessment (5/6)

Key Investment criteria 2.B "The Target": PROFITABILITY •

•

Insights/conclussions •

Due to the nature of the Product A market, main reasons could be: • "The Target" has reduced prices (relative to competitors) to gain market share: MOST PROBABLE HYPOTHESIS • Competitors are focusing on more profitable products/ growing segments of their portfolio (i.e. Product B) • "The Target" has gained competitive advantage (i.e. better design, increased presence in the channel...)

•

Main reasons may be: o "The Target" effort to keep sales by sacrificing margin o Less proportion of high profit products than competitors (i.e. Product B, Product F...) This measure goes against the fact that "The Target" has a commanding market share in premium segments (Product C, Product D): o It supports the share buying hypothesis o It leads to assume "The Target" has been slow to diversify from Product A into Product B and Product F

"The Target" has gained share in the Country1 Product A markets over the last years

“the Target’s” Profitability has decreased more than the industry’s in the period 2009-2011 (EBITDA 2009: 10%; 2011: 4.5%)



Source: BMC analysis This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC

Level of certainty

Certain Uncertain 6

Deliverables The outcome of the study included the following deliverables: 





Analysis of the current and future market environment, in terms of: 

Current market sizing,



forecast by product,



segmentation,



technological trends,



competitor landscape,



value chain,



application,...

Assessment of current positioning of the Target, in terms of: 

Product line,



geographical presence,



suppliers network



client base…

Analysis of The Targets‘s business plan, in terms of: 

Market shares



Potential profitability and cash flows



Required investment



Exit strategies This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC

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Project outcome

BMC helped The Client decide whether to proceed with the acquisition or not, by: •

Clearly identifying the potential value for The Client provided by the acquisition of The Target

•

Building up a business case with several investment, return on investment and cash-flow scenarios that were presented to the Investment Committee and to the Board

•

Identifying all the hurdles that the acquisition could face and hinting on potential ways to overcome them

This presentation has been elaborated by BSRIA Management Consultancy (BMC) exclusively for the use of its client, and will not be used without written consent of BMC

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