Commercial and financial due diligence for private equity acquisition

The client

A middle-market private equity fund in the process of acquiring a niche industrial products manufacturer. The seller serves many industries, including appliances, automotive, plumbing, marine, and consumer products.

The challenge

Evaluating a potential purchase, this middle-market private equity fund looked to our team for assistance with a few key areas of their due diligence process:

• Operational processes and stability of the seller.
• Forecast validation, customer, and market strength analysis.
• Competitive position of the seller.

The private equity fund not only needed to complete due diligence of the seller’s manufacturing operations and organizational structure, but also needed to better understand the seller’s key growth markets — auto, heavy truck, and consumer products. For each growth market they needed to validate the overall market size, industry drivers, global locations, and key competitors.

The solution

Our team provided a holistic view of the seller’s operating dynamics by assessing the effectiveness of the seller’s management, operations, and sales divisions. Our experts performed the analysis by considering key questions like:

• What are the key drivers of the seller’s historical, profitable growth?
• Can the plant floor run efficiently without using significant CapEx investments?
• Can the seller sustained its historical success after the current CEO retires from the business?

Due diligence also included market trends and current customer research and analyses. We also assessed key departments including sales, engineering, manufacturing, and purchasing.

The benefit

Our recommendations have resulted in several benefits, including:

• Providing clarity to the client in regards to the future EBITDA growth potential.
• Analysis to support the rationale for the final purchase price that ties directly into supporting the first 100-days plan.
• Our “one-firm” firm approach is a unifying structure that allows consistent access to our firm’s entire depth and breadth of resources, prioritizing client service over maximizing our profits. By leveraging our “one-firm” firm approach, financial due diligence was completed in unison. This allowed our two project teams to combine site visits at the seller’s location, which significantly reduced disruption to the seller.