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Commercial Due Diligence Case Study

Hi,

What company are you targeting? Consulting or private equity?

In consulting interviews you may have two types of due diligence cases:

  1. Commercial due-diligence of the target company
  2. Synergies calculation of two merging companies

1. For commercial DD you can use the following structure:

Market

  • Size
  • Growth rates
  • Profitability
  • Segments
  • Distribution channels

Competition

  • Market shares of competitors and their segments (see the next point)
  • Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter from a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit economics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)

Company

  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Feasibility of exit:

  • Exit multiples
  • Exit time
  • Existence of buyers

2. For Synergies Calculation you can use the following structure:

  1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  4. Total synergies potential in $, adjusted by risk (probability of failure)

In private equity interviews, the cases will be much more detailed in financial part. Depending on the company you'll need to:

  • Find the relevant information in P&L and Balance sheet
  • Do the simplified valuation using NPV: calculate cash flows and make assumptions about growth rate and discount rate
  • Do the valuation using comps - you'll have to explain which comps you will use and why

Good luck!

Actual BCG Case Submitted by a Reader:

I had a friend doing a mock interview of a BCG case that he failed at in 2nd round.I tried to tackle it using your frameworks but, like my friend, I was getting nowhere.
This was the case:

"Your client, a private equity firm, is considering acquiring 3 companies active in selling and cleaning bed and linen for restaurants & hospitals. Should they pursue this or not?"

"Other information: these companies are currently not profitable"

I tried starting in the business situation framework, but the interviewer wanted to lead me somewhere else.

How would you start/structure this case?

My Questions for You:

1) What are the 3 - 5 MOST important KEY issues in this case?

2) How would you structure or frame your analysis for this case? (Since you don't have the benefit of asking me clarifying questions, it is acceptable make a few reasonable assumptions)

Click Here to Post Your Answer

(Don't peak at everyone else's answer First!  And to protect your privacy feel free to use just your first name or your initials when assigning a name to your answer)

Additional Resources

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Nov 28, 2010

Tagged as:bcg case, bcg case interview, bcg case interviews, case interview questions, practice case interviews

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