Market Study & Commercial Due Diligence
Understanding target’s market and competitive positioning
One of the key challenges for companies undertaking M&A is the difficulty in getting independent, well-informed and practical advice on the target’s markets and prospects.
For example, would you still be willing to pay a premium and proceed with the transaction if you knew that:
- The assumptions underlying the target’s revenue projections were not realistic, or would only occur in a highly optimistic and unlikely scenario?
- A 1% decline in one of the key business drivers would cause the revenue projections to nosedive by $30 million?
- The target does not have a realistic and detailed business plan to achieve its projections?
- The cost of achieving the revenue projections would require a significant capex investment of 45% of the transaction value?
- The revenues were highly dependent on the personal relationships of a few key shareholders, who plan to leave after you complete the transaction?
Meeting Your Needs
The PwC Strategy Group helps you to understand key trends in the target’s market, the competitive landscape, and more importantly, the target’s ability to achieve its business plans. Our independent third-party role ensures that you always get an unbiased perspective on the target’s prospects.
Commercial Due Diligence (CDD)
When undertaking a CDD, our objective is to help you answer the following questions:
Understanding the market landscape is one of the most important prerequisites in strategic decision-making. More often than not, the key to competing and outperforming competitors lies in a better understanding of the key growth areas and market trends.
Rigorous market studies help to support strategy development by providing valuable insights on:
- Is this a good market? What is the competitive landscape?
- What drives the target’s business? What is the target’s market positioning and how does it differentiate itself from competition?
- What are the growth opportunities? What are the key barriers and capabilities/investments required?
- How sustainable is the target’s business? Where are the key risks?
- Should you acquire the target?
Benchmarking provides businesses with comparative information for competitive analysis, strategic planning and performance improvement. It can also be used to validate a company’s budget and performance goals against market realities. Thus, it is a powerful tool for improvement and change. PwC specialises in identifying the appropriate benchmark criteria, developing customised indices and performing sensitivity analyses to determine the critical factors for improving performance.
Location studies provide an independent and objective assessment of various locations for business operations. A location study, whether for a manufacturing plant, corporate headquarters, shared service centre or branch presence, needs to focus on strategic, commercial, operational, financial and tax implications.
- Industry structure and trends
- Market segments, size and growth potential
- Demand driver dynamics and their implications
- Competitive landscape – customers, competitors, suppliers
- Service and product differentiation
- Market entry modes
- Commercial Due Diligence
PwC conducted a CDD on a potential target in them window film sector which claimed to be a market leader with a global distribution network and multiple brand leaders within its portfolio.
Through primary and secondary research, we discovered that while the target had a strong market position, its growth was dependent on one key brand and its distribution network was not as extensive as presented by management. Our findings significantly impacted the negotiation by arming our client with a realistic valuation and a feel for the challenges in the target’s business. It also provided clarity on many key commercial and post-deal repositioning issues, and gave our client confidence to proceed with the transaction.
Leading Automobile Manufacturer in Asia
- Market Study
PwC conducted a market study which included reviewing current market characteristics, regulations, import duties/taxes for vehicles and components/systems, and other trends and projections of the industry in the target country. Through a combination of primary and secondary research, the study presented insights into:
- Main competitors, their respective market shares and market positioning
- Distributors’ and dealers’ margins, network and annual throughputs, as well as sales promotions and incentives offered
- Key customer segment profiles, trends, buying behaviour, and the impact of branding and advertisements
- Cost of assembly by contract manufacturer for local value-add components