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Commercial Due Diligence Template, Checklist & Report

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Go to www.slidebooks.com to Download and Reuse Now a Commercial Due Diligence Template, Checklist & Report in Powerpoint & Excel | Created By ex-Deloitte Consultants & Venture Capitalists.

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Commercial Due Diligence Template, Checklist & Report

  1. 1. Commercial Due Diligence Training & Templates By Former Deloitte and McKinsey Management Consultants
  2. 2. 22 Table of content Background Knowledge Business Toolkit 1 5 Templates you can easily reused for your own project4 The use of a hypothesis driven approach to undertake your CDD Project 2 Key steps to follow during your CDD Project3
  3. 3. 33 There are 3 key types of Due Diligence “What is the past and present performance of the company?” Financial Due Diligence 1 “What is the likely future performance of the company?” Commercial Due Diligence 2 “Is there any legal/tax issues or opportunities the acquirer company needs to be aware of before making a decision?” Legal Due Diligence 3 Key question the Due Diligence tries to answer Who usually performs the Due Diligence? The Financial Advisory team of a Consulting firm (i.e. Deloitte, KPMG, McKinsey) The Strategy team of a Consulting firm (i.e. Deloitte, EY, McKinsey) Business Lawyers from a law firm (i.e Ashurst) These 3 key types of Due Diligence are usually initiated by the acquirer company. However sometimes the Commercial Due Diligence can be initiated by the Vendor or seller company. In that case the term “Vendor Due Diligence” is often used
  4. 4. 44 A Commercial Due Diligence (CDD) is usually performed alongside a Financial Due Diligence and a Legal Due diligence InternalExternal FuturePast Financial Due Diligence & Legal Due Diligence (i.e. past and present Income statements, Balance Sheet statements, Cash Flow statements, tax records, etc) Commercial Due Diligence Due Diligence Focus
  5. 5. 55 In the following slides, we will focus on the Commercial Due diligence InternalExternal FuturePast Commercial Due Diligence
  6. 6. 6 Download Now the rest of this Document and 10,000+ Powerpoint and Excel Documents at www.slidebooks.com or by clicking anywhere on this page Download Now
  7. 7. 77 A CDD should help investors answer 1 key question Should we invest in this company in light of the future performance of the target company?
  8. 8. 88 In order to answer this key questions, the CDD will have to answer multiple sub-questions Should we invest in this company in light of the future performance of the target company? • Strategy • Company key products and services • Company capabilities • Revenue • Cost structure • Profitability Company • Market size and growth? • Market segments? • Market segments size and growth? • Market KPIs • Supplier an distribution landscape • Potential threats and opportunities Market • Competitive intensity • Company’s position in this market?Competition • Segmentation • Price willing to pay by the customers for the company’s products and services? • Purchasing behavior • Trends Customers 1.Landscape Analysis • Company revenue drivers • Past revenue growth • Future revenue growth Are revenue projections reasonable? • Company cost drivers • Past COGS & Operating cost • Future COGS & Operating cost Are cost projections reasonable? 2.Projection Assessment 3.Conclusion • Base case, upside case and downside case Scenarios • Potential challenges and risks to achieve projections Challenges and risks • Considerations of exit options Exit options
  9. 9. 99 The most common clients of a CDD are Banks, Private Equity Firms and Big Corporations Banks Private Equity Firms Big Corporations
  10. 10. 1010 CDD services are usually provided by the top Consulting firms
  11. 11. 1111 There are many stakeholders involved in a transaction Sell-side Management team Shareholders M&A Bankers Consulting firms (Vendor Due Diligence) Buy-side Management team Shareholders Banking advisers Consulting firms (Commercial Due Diligence) Financial Advisers (Financial Due Diligence) Legal Advisers (Legal due diligence) Experts (e.g. tax, human capital) The target Business Financial Advisers (Financial Due Diligence)
  12. 12. 12 Download Now the rest of this Document and 10,000+ Powerpoint and Excel Documents at www.slidebooks.com or by clicking anywhere on this page Download Now
  13. 13. 1313 Table of content Background Knowledge Business Toolkit 1 5 Templates you can easily reused for your own project4 The use of a hypothesis driven approach to undertake your CDD Project 2 Key steps to follow during your CDD Project3
  14. 14. 1414 The simplest way to undertake a CDD projects is to use a hypothesis driven approach Develop working hypothesis for resolution Identify key assumptions that will prove/disprove hypothesis Gather data Analyse data to test key assumptions of hypothesis Draw conclusions and structure final deliverable Frame the problem by breaking it into small pieces Refine hypothesis if necessary Use logic trees to break down the problem into smaller pieces Use a Hypothesis tree including your hypothesis, assumptions, sub- assumptions, etc.
  15. 15. 1515 Example of sub-assumptions that must be true to validate our assumptions The Target Company profit forecasts provided by the Board are reasonable The projected Revenue is reasonable The projected COGS is reasonable The projected Operating Cost is reasonable There is no illogical trend between historic revenues and projected revenues The company core capabilities will support the future revenue growth The revenue drivers have been identified correctly and projected in a reasonable way
  16. 16. 1616 Once you’ve got your “Hypothesis tree” with your Hypothesis, Assumptions, Sub-Assumptions,…it is time to create your work plan Work Plan to validate or invalidate the Assumption “The projected Revenue is reasonable” Sub Assumptions Expected answer Actual Answer Analyses Data Sources End Product Responsibility Deadline There is a logical trend between historic revenues and projected revenues Yes Yes Compare Historic and forcasted revenue CAGR Financial Due Diligence Vertical Histogramme chart Raphael 10 of October The revenue drivers have been identified correctly Yes No Check list of key revenue drivers identified by the management Industry report Driver tree John 13 of October Insert Sub assumptions Insert Sub assumptions Insert Sub assumptions Work Plan Check the Excel sheet provided with the Powerpoint
  17. 17. 1717 Table of content Background Knowledge Business Toolkit 1 5 Templates you can easily reused for your own project4 The use of a hypothesis driven approach to undertake your CDD Project 2 Key steps to follow during your CDD Project3
  18. 18. 18 Download Now the rest of this Document and 10,000+ Powerpoint and Excel Documents at www.slidebooks.com or by clicking anywhere on this page Download Now
  19. 19. 1919 Example of CDD Project Plan Step 1: Background Documents Step 2: Internal Kick-Off Step 3: Management meeting Step 4: Analysis of management data Step 5: Desk research Step 6: Interviews Step 7: Financial Modelling Step 8: Report preparation and presentation Days M T W T F M T W T F M T W T F M Week 1 Week 2 Week 3
  20. 20. 2020 Step 1: Identify, gather and read background documents What is it? Why is it useful? Information Memorandum Sale document prepared by Vendor and/or management Management views, industry context, business overview, historical performance and projections, strategy Vendor Due Diligence Financial and sometimes Commercial Due Diligence prepared by advisers to the Vendor Financial - more detail on business activities, performance, the market and financial position. Commercial – review of market, competitors, customers and a view/rationale behind the business projections. Be wary of VDDs – they can mislead or try to ‘dress up a business’ Specialist market reports Supplemental specialist reports – e.g. property, environmental, expert and technical reports More detail on the business in key areas. Tends to be specialist in nature and may require similarly specialist reviewers VDD presentations Presentations by report authors with opportunity for Q&A Chance to ask questions and challenge VDD (approach, data, who spoke to, conclusions). Prepare questions in advance and usually only get one or two chances Management presentation Presentation by Management with opportunity for Q&A Chance to hear Management’s views in their words, form a view on them and ask questions. Usually get one chance so prepare beforehand and work with client/advisers to form a joined-up set of questions and meeting strategy Trading update Latest trading performance, often an appendix of the VDD Up-to-date information on business performance. Beware if this looks late or suspect and ask yourself why Possible documents involved in a CDD
  21. 21. 2121 Step 2: Internal Kick-off • Meet your team • Establish key role and responsibilities • Ensure a shared understanding of the question we try to answer • Understand the context of the project leveraging the documents read prior to the meeting • Create logic trees to break down the problem into pieces • Run through the scope • Create hypothesis tree including our key hypothesis and assumptions • Talk through the “blank pack” • Present your plan of actions with the “what”, “How”, “Who” and “When” • Discuss key challenges • Prepare for the management meeting Objectives • Ensure that everyone has an open mind • Ensure that everyone has a shared understanding of what needs to achieve and how • It is important to be well-rested as a CDD project can be intense Tips
  22. 22. 2222 Step 3: Management meeting • Introduce your team and build a relationship with the management team • Hear the management team describe their business and future plans • Ask questions to the management to clarify key points • Build an understanding of what management data might be available and submit a data request Objectives • Ask your consultant to take notes and write down a minutes after the meeting • Bring a USB key Tips
  23. 23. 2323 Step 4: Analysis of Management Data Management Data Analysis Tips Objectives: • Extracting management data and carry out detailed data analysis • To build a detailed view of how the company has been performing • To understand how management have built up their forecasts • To identify key areas that require probing with management or through market research Method: • Via an excel spreadsheet Outputs: • Chart-Driven Slides that may be included in the final presentation • Quickly draw up data request based on the assumptions you try to validate or invalidate • Sometimes it may be more efficient to ask the management team to request data on your behalf • Analyse initial data by product, business unit, customer, channel, geography, etc. • Understand Management’s forecast model and its underlying assumptions in details • Create chart driven slides to facilitate understanding • If you can’t access some key data, let the management team know asap
  24. 24. 24 Download Now the rest of this Document and 10,000+ Powerpoint and Excel Documents at www.slidebooks.com or by clicking anywhere on this page Download Now
  25. 25. 2525 Step 5: Desk Research Desk research Tips Objectives: • To identify and gather key sources of information on the industry and company (e.g. Industry report, experts, publications, Industry association, and press comments) Method: • By searching on the internet, leveraging the “Data Research” team of your company, or by contacting companies such as RMI Outputs: • Quantitative and qualitative data on the industry and the company • Triangulate: don’t rely just on one source of information • Note all sources of data in you report or in your financial model • Be tenuous as gathering data can be a fastidious task
  26. 26. 2626 Step 6: Interviews Interviews Tips Objectives: • Gather primary data • To capture views/opinions on the industry and company • To ask questions on a specific topic • To gain data which may not already exist or may be out of date Method: • Interviews with Customers, Suppliers, Partners, Competitors, Industry experts, Regulators, etc. Outputs: • Interview minutes including summary of views and opinions and key quotations • Agree with the management on interviewee list • Organize interviews as soon as possible as people’s agenda can be full • When relevant, ask client to set up the interviews in order to ensure better engagement from the interviewees • Prepare an interview guideline including context, objective, key topics and key questions you want to ask • Be clear on the cover story you are using • Keep questions short • Ask one question at a time • Be neutral in the way you ask questions • Do the least important interview first as a practice • Write up your notes asap, you easily forget • Have a separate excel sheet for quantitative responses • Be careful to maintain confidentiality • Ask if you can call back later if you need any clarification • Identify additional interviewees in order to drill down key areas
  27. 27. 2727 Step 7: Financial Modelling Interviews Tips Objectives: • To test the impact of varying key drivers or assumptions of the business model. No need to create a new financial model if the one created by the management makes sense. Method: • Understand the key assumptions and drivers used by the Management to forecast revenue and cost • Flex the Financial Model key assumptions based on the input of your interviews and Desk research Outputs: • The Financial Model should be easy to understand and used by someone else than you • For more details on how to create a Financial Model using the proper business norms and rules, please click on the link below when you are using the “Slideshow” mode: • http://www.slidebooks.com/collections/busin ess-templates-1/products/financial-model • Use at least 3 Excel sheets: 1 sheet for your inputs and assumptions, 1 sheet for the calculations and 1 sheet for your output • Avoid hard coding data. If you have no choice but to hard code some data, use a blue font • Take a step back from time to time to ensure that you don’t forget the bigger picture and what you try to achieve
  28. 28. 2828 Step 8: Report Interviews Tips Objectives: • The report must answer the initial question in a structured way • The question can be for example: • Are the forecast reasonable? • Is the target company healthy? Method: • A “ghost” report is usually created at the beginning of the project • The structure of the report usually follow the structure of the Hypothesis tree • The competition of each slide is allocated to someone within the team • Someone is responsible for updating the report based on the different inputs of each project member Outputs: • A structured report including quantitative and qualitative slides and using an inductive approach and the pyramid principle • For more details on how to create a report using an inductive approach and the pyramid principle, please click on the link below when you are using the “Slideshow” mode: • http://www.slidebooks.com/collections/business- templates-1/products/pyramid-principle • Use a straight forward language easy to understand • Be careful with the words you use. For example, instead of saying the management forecasts are not achievable, say that the forecasts are not consistence with evidence • Create an executive summary at the beginning of the presentation
  29. 29. 2929 Table of content Background Knowledge Business Toolkit 1 5 Templates you can easily reused for your own project4 The use of a hypothesis driven approach to undertake your CDD Project 2 Key steps to follow during your CDD Project3
  30. 30. 30 Download Now the rest of this Document and 10,000+ Powerpoint and Excel Documents at www.slidebooks.com or by clicking anywhere on this page Download Now
  31. 31. 3131 Slide Template to present your team Insert name and position Insert name and position Insert name and position Insert name and position  Insert key role and responsibilities  Insert key role and responsibilities  Insert key role and responsibilities  Insert key role and responsibilities  Insert key role and responsibilities  Insert key role and responsibilities
  32. 32. 3232 Slide template to present your CDD Project Plan Step 1: Background Documents Step 2: Internal Kick-Off Step 3: Management meeting Step 4: Analysis of management data Step 5: Desk research Step 6: Interviews Step 7: Financial Modelling Step 8: Report preparation and presentation Days M T W T F M T W T F M T W T F M Week 1 Week 2 Week 3 Edit time frame and the name of your key steps depending on your project plan requirement
  33. 33. 3333 Slide Template to create a logic tree or hypothesis tree Text Text Text Text Text Text Text Text Text Text
  34. 34. 3434 Slide Template to create a logic tree or hypothesis tree Text Text Text Text Text Text Text Text Text Text Text Text Text
  35. 35. 3535 Slide Template to create a logic tree or hypothesis tree Insert your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text Your text
  36. 36. 36 Download Now the rest of this Document and 10,000+ Powerpoint and Excel Documents at www.slidebooks.com or by clicking anywhere on this page Download Now
  37. 37. 3737 Slide Template to create an interview minute Insert Key message • Insert details supporting the key message • Insert quotations using an italic font Interview with John Dana Minutes Insert Key message • Insert details supporting the key message • Insert quotations using an italic font Insert Key message • Insert details supporting the key message • Insert quotations using an italic font
  38. 38. 3838 Slide Template to create an executive summary  Insert your own text  Insert your own text  Insert your own text Insert your own text Insert your own text Insert your own text Insert your own text Insert your own text Question Answer Reason #1 Reason #2 Reason #3
  39. 39. 3939 Slide Template to compare the target company with its key competitors 20 15 10 5 0 -5 A B C Gaining market share Losing market share Average market growth 0 10 20 30 40 50 CompanyGrowth(%) Market Share (%) = $ xx million in sales Insert your key message 60 D
  40. 40. 4040 Slide Template to present the company’s revenue and profit forecast Insert your key message 0 0.5 1 1.5 2 2.5 3 3.5 4 2014 2015 2016 2017 2018 Revenue Profit Revenue and Profit forecast
  41. 41. 4141 Slide Template to create a revenue bridge using a waterfall chart Revenue bridge Comments • Insert your own comments related to the revenue bridge or waterfall chart on the left • Insert your own comments related to the revenue bridge or waterfall chart on the left • Insert your own comments related to the Insert your own comments related to the revenue bridge or waterfall chart on the left • Insert your own comments related to the revenue bridge or waterfall chart on the left • Insert your own comments related to the revenue bridge or waterfall chart on the left • Insert your own comments related to the revenue bridge or waterfall chart on the left • Insert your own comments related to the revenue bridge or waterfall chart on the left • revenue bridge or waterfall chart on the left • Insert your own comments related to the revenue bridge or waterfall chart on the left Go to the Excel sheet provided with this document to access the chart
  42. 42. 42 Download Now the rest of this Document and 10,000+ Powerpoint and Excel Documents at www.slidebooks.com or by clicking anywhere on this page Download Now

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