Case Study: Acquisition Research
Our Client is one of the largest manufacturers in the world of oil rigs and platforms. However, the market for oil rigs and platforms is winding down, especially in Europe and the Gulf, and it needs to invest in alternative businesses.
It has a small engineering division and this has become the vehicle for an expansion plan. The only way to expand rapidly was by acquisition and targets were sought that made measuring instruments for liquids in process plant.
The acquisition market research strategy was designed with two stages: the first stage was to build up a list of targets with sufficient information to understand each target’s prospects for growth and the second stage was to carry out “commercial due diligence” to ensure that the market position is as portrayed by the selling company. An aggressive timetable sought to complete both stages of the research within 6 months.
Stage 1: Locate The Targets
A detailed briefing from the Client gave the researchers an understanding of what would be suitable and unsuitable as targets. Geography was an important driver as the target had to be within a day’s t lling distance from the company’s headquarters.
Five days of desk research provided a comprehensive list of targets and an indication of market size and trends. Within this time period, interviews were also carried out by phone with trade associations and a selection of the acquisition targets. These provided a more accurate view of market size and the shares of the players. The report at the end of stage 1 provided a picture of the market for measuring instruments in operators of process plant and a recommended list of targets.
The Client approached a few of the targets and a deal was concluded with a company based in northern Italy. The deal was subject to due diligence. Due diligence is work carried out to confirm that what has been claimed by the acquired company is as stated. In almost all acquisitions, accountants carry out financial due diligence (checking the financial figures once the books have been opened to the acquiring company). Commercial due diligence is not always carried out but it is strongly recommended to safeguard against optimistic claims by the selling company. This was the second and final part of the market research.
Step 2: Commercial Due Diligence
The company that was being acquired provided a list of around 200 customers and from this the research agency chose large and medium sized customers to interview. It also sampled companies that ope process plants but were not on the customer list (in other words “non customers”). The purpose of the interview was to check out the satisfaction of customers with the acquisition target and to confirm the durability of the market. This combination of interviews with customers and non customers provided an objective view of the company’s strengths and weaknesses relative to other suppliers of measuring equipment. More importantly, it gave the acquiring company a head start on developing a strategy for building the company from the moment that the acquisition was finalised.