Traditional due diligence has always focused on the basic metrics of the target company and its industry such as market size, competition, and financials. Even before the pandemic hit, acquiring companies and PE firms were beginning to realize that such a boilerplate approach is woefully inadequate and does not go far enough in uncovering existing weaknesses and inefficiencies as well as cash and growth opportunities that may be hidden in the target company's supply chain and operation. As the pandemic became a global crisis, the world experienced firsthand what happens to companies when operational due diligence is viewed as a "check-the-box" exercise. Supply chains that worked well suddenly failed, and long-standing strategies that focused on cost-based sourcing from a small number of large suppliers in a single region had to be re-evaluated. Operational due diligence -- during the pandemic and post-pandemic environment -- is much more likely to uncover the potential for failure, as well as opportunities for de-risking and accelerating time-to-rebalance.
For sophisticated deal makers, operational due diligence (ODD) is much more than a defensive tactic to identify and mitigate risk. Rather, it's viewed to be value driven and designed to embed value from the start by increasing bidding confidence and competitiveness, improving lender/investor dialogue and accelerating time-to-close. These same deal makers understand ODD helps identify all the value levers that, when acted upon, will enable the investment to drive EBITDA, cash and growth and ultimately reduce their holding period, in turn optimizing the internal rate of return (IRR), and overall fund performance.
Take a close look at the target company's suppliers and sourced materials. Is the company reliant on single source and single-region strategies? Every supply chain in the world has suffered some level of disruption -- is the target company planning on going back to "business as usual", or are they planning for permanent changes in supply chain operations? It is very likely that, even after the pandemic danger has passed, there will continue to be a major impact on the end-to-end supply chain.
Is there a rebalancing plan in effect, or is there a possibility for one? Diversifying the supply chain will contribute towards de-risking in the future. It may be possible to source from multiple suppliers, in a new combination of offshore/nearshore/onshore sources, without having to face higher costs. Has the logistics network adapted to supplier, operational and customer changes?
Finally, the post-pandemic environment is likely to bring about permanent, and potentially positive, changes to the M&A - and associated due diligence- processes. Acquisitions have always been driven by face-to-face interaction, and deal-making has been one of the last to embrace the inevitable march towards digital collaboration tools. This digital transformation -- which includes advanced data analytics -- will ultimately transform not only how a firm analyzes deals but also how they add value to them post-acquisition.
About Us
Maine Pointe, a member of the SGS Group, is a global supply chain and operations consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in EBITDA, cash and growth across their procurement, logistics, operations and data analytics. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the plan-buy-make-move-fulfill digital supply chain to deliver the greatest value to customers and stakeholders at the lowest cost and risk to business. We call this Total Value Optimization (TVO)™.
Maine Pointe's engagements are results-driven and deliver between 4:1-8:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com