M&A

Due Dilligence + Investment thesis

Helping companies at the early stages of an M&A to determine the right targets for acquisition through evaluation of risks, assessment of value generation levers, and results simulations

What challenge(s) do our clients face?

How to confirm the investment thesis in the early stages of a deal, which is characterized by lack of information about the actual valuation of a target organization, and its potential value creation levers

Most M&A processes originate from a business case/investment thesis based on the value-creation potential of acquiring and/or merging businesses. There are multiple challenges facing organizations during the pre-deal stage:

  • Analyzing the current and potential value of a target: confirming or not the investment thesis
  • Defining Valuation parameters
  • Setting concrete and realistic goals for the integration: Agreeing targets which will drive the integration timeline, investment, milestones and team
  • Mapping risks: Identifying potential problem areas and preparing mitigation and contingency plans
  • Aligning expectations between all parties: Reaching consensus on the deal and integration goals, both across and within organizations

These challenges are particularly amplified in the early stages of a deal, which in our experience is often characterized by:

  • A lack of information available on the target organization and/or the industry
  • Conflicting interests between the sell and buy sides
  • Time pressure, driven both internally based on the organization’s targets, and externally, as a result of uncertainty around the competition’s strategy

How do we help?

Integration helps to confirm the value creation levers, challenging the investment thesis and reducing the uncertainty in the decision-making process by bringing an unbiased perspective, balance between desire and reality, and a tested methodology.

We can help our clients with:

  1. Strategic Due-Diligence: Evaluating and analyzing the target’s strategic positioning and coherence with the Investment Thesis, considering aspects like market growth overview and trends, competitive landscape analysis, growth potential of the target, cultural assessment and governance related challenges. Our objective here is to see how a target company can contribute to the overall Investment Thesis.
  2. Commercial Due-Diligence: Evaluate and analyze the target’s commercial and sales strategy considering aspects like consumer needs, commercial structure, client base, and topline performance. Our objective here is not only to identify opportunities for cost saving but also to expand net revenue.
  3. Operational Due-Diligence: Evaluate and analyze operational aspects like manufacturing, logistic and back-office processes and structure; with the objective of foreseeing challenges and risks for each area, identifying any need for investment in infrastructure, people and also systems to achieve the desired service level for our clients.

What are the benefits?

A thorough due diligence alleviates uncertainty and reduces risk. It can:

  • Connect senior leadership to the reality: Understand expectations of your team vs. the deal context and target, to identify conflicts and reduce future frustration
  • Improve accuracy of valuation through business/quantitative levers: Identify main aspects of the business that help to achieve the financial and strategic results planned in the investment thesis and / or business case, and estimate the benefits that it will bring to the new organization
  • Improve accuracy of valuation through qualitative levers: Identify “soft” factors inside the organization which generate complexity in the post-merger integration phase, and impact capability and speed to generate value
  • Reduce resource investment: Assess potential deal-breakers during due diligence, to improve efficiency in the evaluation process and accelerate decision making
  • Improve visibility of risks and realistic action plans: Identify and measure business levers against the Investment Thesis target to assess potential conflicts, and set action plans with defined enablers and investment

How does it work?

Our methodology has been developed through our experience in over 60 M&A processes, in a range of sectors, geographies and levels of complexity.

Each Due Diligence Assessment is unique and can vary in terms of phases depending on the maturity of the deal and its objective. But in most cases, it can be divided into three main steps:

CLEAN TEAM DEFINITION Definition of project governance We work together with you to define the clean team focused on the project at this stage, designing the governance model suited to your reality and organizational structure, which enables a clear flow of information and decision making. We act with legal guidance to ensure the governance respects anti-trust limitations, while providing the necessary visibility to Leadership on the progress of the project. A 1 DEFINITION OF VALUE CREATION LEVERS Data collection and market view We start by defining the key questions to be answered, considering the objectives of the deal, expectations across the Leadership team, and our own benchmarks and industry knowledge. Based on these questions we begin to gather the key data and market view; leveraging internally available data, interviews with different functions inside the operation and the target’s Leadership, and where possible, conduct field visits and interviews with customers to bring an external perspective. In some cases, we need to rely solely on partially available information and secondary market data to set an initial broad vision, which can then be reviewed as the deal evolves. B Definition of value hypotheses and assessments Through our understanding of the initial business case, we run a preliminary analysis of synergies, with a focus on defining priority levers that really drive the success of the deal. Considering the sensitivity of these levers, we agree the rationale for the synergy’s calculation and the necessary granularity of the analysis. C 2 VALUE CREATION LEVERS DIAGNOSIS AND BUSINESS VALUE CONFIRMATION Value creation levers diagnosis We identify the operational factors behind the profitability of the target organization, and how they fare vs. competitors, against the priority levers. We bring expertise across sectors and trends, combined with a broad and unbiased view of the operation – evaluating strategic goals, competitive differentials, evaluation of the commercial model, supply chain, and management structure to bring depth to this analysis. D Impact on business value We assess the risks to business sustainability, and their impacts on the Investment Thesis, to confirm the business value. E 3

The value of an unbiased party between the sell side and buy side should not be underestimated during the due diligence phase. Through our clean team approach, we bring a neutral and technical perspective that reflects what is best for the business, even if it frustrates individual agendas and interests.

SUCCESS STORIES

CHALLENGE

A Private Equity & Investments fund had a buy and build Strategy for the Food Service Logistic Industry, and needed to evaluate multiple acquisitions at the same time to initiate a new platform from scratch: organizing the operation, defining the organizational structure and management team, and developing a plug and play platform.

APPROACH

We helped the client to carry out a strategic, commercial and operational due diligence – identifying the main opportunities to leverage the organization’s growth – and a market scan – evaluating the growth perspectives and the organization’s possible expansion scenarios. Based on the buy and build strategy, they rapidly invested in one target. After this first acquisition, we helped them to confirm the investment thesis targets and assess a group of companies that they were considering for investment.

RESULT

For the private equity fund: we confirmed the investment thesis targets, selection of the potential targets and provided visibility of the main risks of the strategy defined (commercial and operational issues), increasing their confidence on the thesis. The company started with zero and after 2 years had an income of over R$2 Bi /year.

For the Management Team and Board of the acquired organization, we helped to organize and define key questions to be evaluated during the acquisition process and clarified the need to prepare the teams for the multiple PMI processes.

CHALLENGE

A leading European beverage organization entered the Brazilian beverages market through the acquisition of a local player. The client had no prior knowledge about the market, and needed to understand the local competitive landscape, and route to market.

APPROACH

We started by completing a commercial pre-due diligence assessment of the prospect’s route to market capability, and developed an analysis to test if the volume forecast in the entry strategy business case could be achieved in the timeframe expected, based on the client data base. We identified the main gaps in the market, and further evaluated the route to market strategy and commercial structure, to understand the core strengths of the acquired organization, and their capability to cover the market gaps.

RESULT

We concluded that their business case was feasible from a route to market perspective, with one major attention point flagged for the real due diligence (price deflation), for which we defined a clear action plan. Following this confirmation, we supported the client to detail the synergies and plan the integration, considering the action plans defined in the Due Diligence Phase.

CHALLENGE

An American Chocolate Manufacturer with a small presence in Brazil was looking to expand its operation via acquisitions. Considering that other leaders in the chocolate business were already owned by other multinationals, they identified a player that had a wider portfolio, playing in snacks beyond confectionary. The client asked Integration for support in evaluating the real chances of success from a possible merger.

APPROACH

One the project had been confirmed as aligned with the overall strategy, and approved by investors, we worked hand in hand with global M&A to develop extensive data analysis and simulations, interview local producers and conduct field visits, to ensure the recommendation was solid and the rationale clearly understood.

RESULT

Through a detailed understanding of the target company value proposition, distribution channels, brand equity and profitability projections, our recommendation did not confirm the organization’s hypothesis.  The deal was not approved, and the client took a different, more successful direction.

INDUSTRY EXPERIENCE

Our M&A approach adapts to industries of every sector – we serve industries going through an M&A process by themselves, and private equity organizations who have competed many before, working with many regional and international companies across Consumer Goods, Logistic Operators, Retail, Pharma Healthcare among others.

Our professionals have a developed understanding of market dynamics, best practices, and organizations’ strategic decisions across geographies, as well as industry segments. This allows us to bring robust and customized solutions to our clients in all M&A strategies and contexts.

TALK TO US

Augusto Ribeiro

Augusto Ribeiro is a Managing Partner at Integration and has been working since 2003 in the Marketing & Sales practice. Augusto built a solid international experience, leading and implementing strategic Marketing & Sales projects in industries ranging from Consumer Goods through Construction & Property Development to the Financial Industry, especially in the Private Equity sector.

Carlos Lima

Carlos is the President of Integration and a Founding Partner. Carlos has worked with leading international companies across the globe as a consultant for the last 30 years and has developed a particular specialization in Marketing and Sales. He is considered an expert in the Consumer Goods sector and on the topics of Commercial and [...]

Carolina Flores

Since 2010 Carolina has been working in our Finance & Management practice, helping our clients across industries achieve important transformations. She has often been involved in projects of large and international scale supporting organizations to achieve their financial objectives through efficiency programmes, Organizational Structure changes, Synergy Evaluation and PMI to name a few.

Daniel Rodrigues

Daniel is a Director within our Marketing & Sales practice and leader of Integration’s TechLab. Over the course of over 10 years with Integration, Daniel has helped clients from diverse industries and countries with digital and commercial challenges ranging from Go-to-Market Strategy to Commercial Due Diligence. Through his extensive business experience Daniel ensures that our [...]

Hugo Ribeiro

Hugo is a Founding Partner at Integration and can count on more than 30 years of experience in consulting. Hugo, who holds a post-graduate degree in Business Administration from Harvard University, is a senior specialist in the area of Finance & Management and frequently leads projects in Organizational Structure, Strategic Planning, M&A, Improvement of Productivity, [...]

João Vilela

Since 2009 João Paulo has been working in our Supply Chain practice. During this extensive period, João Paulo has led projects across numerous continents and in several sectors and areas of Supply Chain. He has worked on challenges such as Logistics Network Design, Transport Efficiency, S&OP, Order-to-cash, Stock Management and Supply Modelling.

Lucas Tavolaro

Lucas joined Integration in 2011 and found his home in our Finance & Management practice. He has supported our clients in the creation Strategic Roadmaps, M&A synergy evaluations, Go-to-Market strategies, Cost Efficiency and Strategic Sourcing projects. His experience includes sectors such as Consumer Goods, Construction & Property Development, Education, Private Equity, Oil & Gas, and [...]

Luis Bernal

Luis is a Manager in the Marketing & Sales practice. Originally from Columbia, Luis is an entrepreneur at heart, and has worked in several start-ups in Colombia, receiving his MBA from IPADE. He has accumulated international consulting experience whilst working across the United States, Mexico, Caribbean and Central America, Colombia and Brazil in industries such [...]

Luis C Vidal

Luis is a Managing Partner at Integration where, since 1999, he has been working in the Supply Chain practice. During this period, he has led projects in the most diverse sectors and in themes such as Logistic Optimizations, Process Efficiency, Planning (S&OP), Industrial Strategy, Go-to-Market Strategy and Distribution Structure. His international experience encompasses the opening [...]

Matt Suggett

Matt Suggett is a Director at Integration, with significant consulting experience in projects such as Commercial Strategy, Market Entry Strategy, Pre- and Post- Deal M&A, and Organizational Redesign. He has supported clients in industries ranging from Consumer Goods and Healthcare to Metals & Mining across four continents. He holds a master's degree in Management from [...]

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