Commercial due diligence is the process a corporation or private equity firm undertakes to gauge a company’s commercial attractiveness. Unlike financial due diligence, which focuses solely on the financial health of the company, commercial due diligence provides a full overview of the target’s internal and external environment.
A commercial due diligence report analyses company performance, the likelihood that the business will meet its targets, and highlights potential problems that may occur as a result of an acquisition.
This report provides the potential buyer with in-depth knowledge of the target company and the market in which it is positioned. It is designed to enable the prospective buyer to make an informed decision, and highlight any potential risks associated with the target business.
Ticking the boxes
- Our process will vary depending on the nature of the target company, however the contents of the final report will remain largely the same across most industries. Typically the report will include the following information:
- Review of the target’s business plan and predictions
- How realistic are these targets?
- How achievable is the business plan?
- Research and assessment of the market
- Where is the target positioned within the market?
- Where is the market heading? How could this affect the value of the target company?
- What are the trends in the market?
- Analysis of competitors and customer base
- Who are the strongest and weakest competitors?
- How does the target perform against its competitors?
- What is its customer profile?
- Revenue and gross margin modelling
- Will the target reach its projected revenues?
- How much can the target company be expected to make over a set period of time?
- Pricing and margins
- How have average prices fluctuated historically?
- What is the forecast for prices in the future?
They say it takes one to know one, but it also takes experience of one to spot one – we’ve spent our whole lives forming, managing, working in and working for businesses in many sectors, some very successful, others not so, and would like to feel that we can quickly get a sense of the qualities and values of a prospective partner or acquisition.