Commercial due diligence is a critical step for private equity firms considering investment targets. Whether conducting a market analysis, understanding voice of customer or getting intel on the competition, the more accurate information a PE firm can obtain, the more informed their investment choices will be.
In the automotive sector, the stakes are particularly high given the industry’s complexity, rapid technological advancements and shifting consumer preferences.
As the global automotive landscape evolves, with an increased focus on electric vehicles (EVs), autonomous technology and innovative mobility solutions, CDD becomes an indispensable tool for investors to navigate the terrain with confidence.
READ MORE: What is Commercial Due Diligence?
Let’s discuss the main aspects of commercial due diligence and how they apply to the automotive industry.
1. Comprehensive Market Analysis: Size
The automotive industry encompasses a vast ecosystem, including original equipment manufacturers (OEMs), dealerships, aftermarket providers and myriad service-related entities. To understand the market size, investors must dissect the industry into digestible segments. For instance, in the dealership and aftermarket spaces, it’s essential to quantify the number of potential service providers and the extent of services they offer. The goal is to identify the market’s expansiveness and potential growth areas.
A case in point is the burgeoning sector of tech-enabled EV charging infrastructure. As the adoption of EVs accelerates, so does the need for extensive charging networks. A CDD provider must evaluate the current infrastructure, forecast the demand for charging solutions and assess the scalability of businesses within this niche.
2. Comprehensive Market Analysis: Total Addressable Market (TAM)
Determining the TAM provides insights into the revenue potential across the automotive industry’s sub-sectors.
For instance, the TAM for digital marketing platforms serving auto dealerships is shaped by advertising budgets and the digital transformation of marketing strategies.
Similarly, in the emerging market of adventure vans, understanding the TAM involves analyzing consumer trends toward outdoor and lifestyle vehicles, the average spend on upfitting, and the potential for market expansion.
3. Competitive Landscape
A robust competitive analysis is crucial to understand the dynamics of the automotive industry. This involves identifying key players, their market shares and differentiators.
For example, in the machine handling space with applications in automotive manufacturing, it’s important to evaluate the competitive stance of companies providing pneumatic automation systems and their relevance to the industry’s move toward aluminum and other lightweight materials.
When evaluating merger and acquisition brokerage for auto dealerships, understanding the competitive landscape means assessing the consolidation trends, identifying the major players and evaluating the services offered to capture market share in a niche yet dynamic segment.
4. Voice of the Customer (VoC)
VoC research provides a window into the target market’s perceptions and needs. For automotive dealerships, it may involve gathering insights from general managers to understand the effectiveness of digital marketing services and the impact of technological changes such as the shift away from third-party cookies.
For providers of aftermarket products, VoC can reveal customer satisfaction levels, preferences for customization, and the importance of e-commerce channels.
READ MORE: Voice of Customer Process: Methodologies for Better Service
BluWave clients are increasingly seeking specialized providers on an industry-specific basis. As a result they’re getting valuable insights that would otherwise be unattainable from a generalist third-party.
In times where other PE firms are struggling to get the right information on the timeline they need, equipping yourself with unique data quickly will provide you with competitive edge.
The expertly vetted service providers in the BluWave network have performed countless commercial due diligence analyses specifically in the automotive industry.
Contact our research and operations team to get connected with a short list of PE-grade service providers within a single business day.
