MARKET RESEARCH REPORTS BY MBD...

COMMERCIAL DUE DILIGENCE

VENDOR DUE DILIGENCE

THE RATIONALE

Vendor commercial due diligence is carried out on behalf of the seller, by MBD as an independent third party, thereby assisting the vendor to maximise the value realised from the sale while enhancing an efficient sale process. The use of vendor commercial due diligence is an increasing trend among business owners. It offers a number of clear advantages to vendors:

• Speeds up the sale process and saves costs. It eliminates the duplication of due diligence work by multiple buyers, who want answers to many of the same questions, and thereby significantly reduces the time demands on the management team.

• Vendor commercial due diligence provides greater credibility to facts and figures as well as providing analysis that explores the further opportunities for the business therefore supporting sale price negotiations.

• Assists maintaining a number of bidders running through to the later stages of negotiation by presenting information and analysis to potential buyers.

• Allows acquirers to effectively evaluate their bid and therefore prevents price chipping at the later stages of negotiation.

• For some sellers it reduces the need for buyer's due diligence, and it reduces the amount of confidential material that is disclosed to the buyer. This can be particularly important where the potential buyer may also be a potential competitor.

• It answers many of the questions a potential purchaser will ask, limiting the need for extensive multiple due diligences by potential purchasers, thereby allowing management to focus on the key deal issues and running their business.

• It gives the vendor more control over the sale process and the due diligence process which inevitably involves sensitive discussions with the client base.

THE PROCESS

The vendor commercial due diligence employed by MBD is essentially very similar to that used in commercial due diligence conducted for finance providers, that is, it provides a balanced and logical analysis of the company, its market ,competitive environment and the company prospects. The major difference is that the project is commissioned and paid for by the vendor, and the report tends to be more comprehensive since in some cases potential buyers will have less knowledge of the company and its market at this stage of the sale.

OUR SERVICE

For a number of years MBD has performed focussed commercial due diligence reviews, providing a comprehensive analysis and assessment of the commercial and market dynamics facing an investment. During this time we have worked closely with a number of financial institutions in order to develop a commercial due diligence review that is tailored to meet the demanding requirements of an investor. That experience and the reputation of the company adds further credibility to the vendor commercial due diligence assignments.

These reviews are undertaken by our highly experienced team of analysts who specialise in commercial due diligence.

OUR APPROACH

Following an initial briefing to take a client's instructions we will agree the full terms of reference along with the time scale, reporting procedures and the fee structure. Fees for subsequent presentations to potential investors are also agreed prior to the commencing of the assignment.

We co-ordinate our time with management, and initially undertake brief desktop research in order to assess the availability of information on the market, the dynamics of the sector and the growth expectations. We will then discuss the business plan with the management after which we will comprehensively examine the projections, the anticipated profit development and customer base.

We will also agree with management how to approach the sensitive issue of customer and supplier interviews to gain the required detailed information without divulging the confidential nature of the enquiries. These discussions are usually required to 'get close' to the market, and we have found that they offer essential benefits of accuracy and detail compared with published information. They also provide potential investors with relevant comfort levels with respect to the customer portfolio.

We thoroughly research the agreed areas using an appropriate mix of desk research and original interviews. We test the research results before undertaking the full analytical assessment. Forecasting is undertaken using a pragmatic approach, and is facilitated by the training of the consultants who are never satisfied with a response to a question until we understand the reasoning for that response. Only when this is achieved can the future developments be projected.

We detail the findings in a concise and clearly presented report. This is initially presented to management, but can subsequently, on management’s instructions, be presented to potential investors.

TERMS OF REFERENCE

We conduct business to business research in a variety of markets.

The range of industries covered is constantly expanding, but recent commercial due diligence has included assignments on the following markets and industries:

• automotive products
• building product
• chemicals
• contracting
• engineering
• healthcare
• software
• utilities
• waste management

We agree the terms of reference with the management before commencement. We uniquely design each assignment to concentrate on the critical issues for the specific investment. However, major areas of investigation that typically form the heart of the assignments include:

Company Issues:

• Ability to achieve forecasts
• Critical success factors
• Exit potential
• Key account sensitivity
• Management appraisal
• Reputation with customers/market standing and share
• Strategy evaluation
• Supplier issues
• SWOT analysis
• Viability of gross margin projections

Market Issues:

• Competitor performance and strategy
• Industry structure/ distribution routes
• Market dynamics, size, trends and structure
• Market forecast

The reports are presented to management, in face to face presentations to ensure a complete understanding of the content, and implications, of the research findings.

FEES AND TIMING