Commercial Due Deligence
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We understand that commercial due diligence is focusing the strategic position and growth aspect of the target company. Does the commercial DD is still required for horizontal merger when the buyer himself are in the market, they might know better them other people who is not in the market in term of growth aspect? Or the consultant can give better analysis from the strategic point of views?
You are right. Hiring consultants is not always a silver bullet. Nevertheless, the transaction participants will still need to objectively justify the transaction and its assumptions to their management and all external stakeholders. It’s better to qualify assumptions with robust research and expert opinion that would otherwise take years for the company to develop/acquire.
In case of horizontal merger, while the buyer may himself know the market, customers and competitors better, commercial DD may still be required. Consultants who are experts in the business sector handling similar deals and working with various other clients may help bring in independent perspectives through their globally accredited research, analytics and strategy consulting teams and platforms. Such perspectives and recommendations are generally brainstormed, questioned and debated in order to reach a mutual alignment justifying the assumptions and for further presentation to the top management and external stakeholders.
Think it depends on how confident the acquirer is about its knowledge about the market. External CDD advisor is not necessary, but M&A manager may still have to address CDD relevant questions when reporting to senior management and Board investment committee.
All commercial DDs are based on guesstimates and projections. Relying on just internal guesstimate and projection leaves room for blindsight and risk. Having another view of the commercials, however guesstimate and projections they are, gives a sense for whether our own numbers were in the zone or completely off.
I believe in case of horizonal mergers, the consultant needs to address specific concerns that the acquirer is worried about. CDD is forward looking , it is possible that the acquirer marketing and commercial team is well aware of the market condition but may not be able to anticipate how the market will evolve in the future.
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