Commercial Due Diligence
There are generally two truths underpinning your
investment thesis - you like the target’s market and
you like the target’s position.
And there is a good reason for that logic. Not surprisingly, revenue growth (both industry and alpha) is historically the largest driver of value creation for market investments. Commercial diligences ensure you get comfortable with potential outcomes across both dimensions and avoid surprises.
In today’s environment, commercial diligences are especially important. Disentangling COVID’s market impact (for better or worse) from management’s forecast requires original research, fact-based analyses, and highly relevant expertise. Moreover, you need validated insights fast. Processes are accelerating and multiples are expanding. This can have a compounding effect on any deal’s risk profile.
How Pointe can help
We inform the investment decisions of our PE sponsors and strategic buyers with high-impact analyses on tight timelines. Delivering on this value proposition – speed and quality – requires us to remain zealously focused on the investment thesis, testing the elements that are going to move the needle for the deal. This process typically includes several key elements:
Formulate a testable investment thesis for an acquisition candidate
Define, size, and forecast growth for a target’s addressable market
Determine the defensibility of the target’s base business
Identify and assess feasibility of growth opportunities to determine what is underwritable versus what should be modeled as potential upside
Evaluate the reasonableness of management’s forecasts and underlying assumptions
Relevant use cases
For a leading private equity firm, we developed an investment thesis for a national accounting firm and validated the key hypotheses. Pointe’s expertise in the global professional services space and its analysis of management’s forecasts helped the client negotiate a more competitive winning bid. After the close, we led a series of workshops to help guide the 100-day plan.
We assisted a middle market private equity firm in the evaluation of a high-growth target in the logistics and distribution space. The target’s market was experiencing uncapped growth due to COVID disruption. We ensured our client was comfortable with what was a demand pull-forward and what was a sustainable shift in the demand curve. This analysis supported a lower winning bid than initially intended.