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DUE DILIGENCE OF A MANUFACTURING COMPANY

A leading Private equity firm had identified a manufacturing company as a potential acquisition target. The firm wanted to evaluate the growth potential of the company in its present market segment, before closing the deal. The firm gave TKC 4 weeks to perform the due diligence.

A Leading global PE planned on acquiring a controlling share in a manufacturing company
The firm wanted to assess the attractiveness of the company given market outlook in next 5 years
It also wanted to assess the attractiveness of the asset for a strategic buyer in next 5 years

TKC focused on 4 key areas to determine the economic value to the PE firm of acquiring the manufacturing company.

PROJECTED MARKET DEMAND

Assessed relevant markets on supply and demand cycle.
Conducted price projection analysis of the products sold by the company to access impact on EBITDA margin.

PREPARED OPTIMAL SALES PLAN FOR THE COMPANY

Studies the total delivered cost of all manufacturers operating in the target markets.
Analyzed companies competitiveness by micro-market.

IDENTIFIED THE OPERATIONAL AND STRATEGIC IMPROVEMENT LEVERS

Evaluated strategic investments to gain cost advantage.
Diagnosed improvement initiatives like sales force effectiveness and strengthening local distribution channels.

STUDIED THE ATTRACTIVENESS OF THE COMPANY FOR A STRATEGIC BUYER

Based on the following findings we proposed that there is value in acquiring the company.

We projected a growth of 5.5% in nominal prices of the product which implied EBITDA margins increase of 28%
Company was found to be strategically located to serve 3 major micro-markets.
We made recommendations for an optimal sales plan which could increase the EBITDA by INR 40 Cr by 2018.
It would be much most costly for an MNC to invest in a greenfield project than acquiring an existing company.