An upper-middle market PE firm wanted to conduct a comprehensive market study on an acquisition target: a company that provides part-time finance resources and accounting services to non-profits.
The Challenge
Navigating Multifaceted Industry
The challenge lay in dissecting the multifaceted industry landscape, combining accounting, consulting and staffing. The market study would need to reveal client behaviors, buyer dynamics, TAM and competitive landscape.
How BluWave Helped
Strategic Connection for Deep Market Insights
BluWave identified a market study firm with:
Non-profit Expertise: Specializing in financial services, offering insights into accounting, consulting and staffing dynamics.
Comprehensive Analysis: Explored client behavior, buyer landscape, competitive positioning and growth potential in nonprofit financial services.
Future-Forward Focus: Investigated data analytics and cloud synergy with nonprofits, enhancing AI/ML capabilities and implementation strategies.
The Result
Study that Surpasses Expectations
The market study revealed all the PE firm had hoped for and more:
Holistic Understanding: Unveiled nonprofit finance nuances, including part-time resources and consulting, providing a comprehensive sector view.
Strategic Opportunities: Analyzed client behaviors and growth prospects, empowering the PE firm with expansion strategies.
Future Resilience: Explored data analytics and cloud services’ role in nonprofit finance, boosting sector resilience and innovation.
Great communicators with a strong command of the materials and the mandate.
Service Area: Merger Planning & Integration: Post Merger Integration
Client Type: Middle Market Private Equity Firm
Service Provider Type: Post Merger Integration Consultant
Industry: Manufacturing: Aerospace
The Need
Forging Unity Across Borders
When a middle-market private equity firm acquired an international aerospace entity, the challenge of seamless integration across borders emerged. Seeking expertise beyond their organization, they turned to BluWave for strategic matchmaking with a post-merger integration (PMI) specialist.
The firm understood the critical role of effective integration in maintaining business continuity and customer trust, and they wanted outside help to do it.
The Challenge
Bridging Gaps in Aerospace Integration
With a multi-country aerospace entity acquisition, the complexities of integration spanned geographical, operational and cultural dimensions. The task of harmonizing processes, systems and customer interactions across 14 countries presented a formidable challenge. The focus was on preserving customer trust, especially with industry giants, while optimizing operational efficiency in the global landscape.
How BluWave Helped
Industry-Specific Resource with International Experience
BluWave’s intimate knowledge of the world-class service providers in its network accelerated the PE firm’s selection of an exact-fit service provider:
Expert Identification: BluWave knew exactly which PMI specialists had aerospace knowledge and cross-border integration experience.
Customized Matching: Through a thorough assessment of the client’s requirements, BluWave matched them with a PMI consultant whose expertise aligned with the specific challenges of aerospace integration.
Strategic Alignment: BluWave ensured that the chosen PMI expert understood the client’s objectives, including maintaining customer trust, achieving operational efficiency and realizing synergies.
The Result
Achieving Integration Excellence
The PMI specialist delivered for the PE firm across the board:
Seamless Transition: The acquired aerospace entity underwent a smooth integration, preserving customer relationships and business continuity.
Operational Excellence: Cross-border collaboration and efficient integration processes contributed to optimized operations.
Customer Trust: Through meticulous execution, customer trust and satisfaction were upheld, especially with industry giants.
Service Area: Commercial Due Diligence: Market Study
Client Type: Middle-Market Private Equity Firm
Service Provider Type: Market Research Firm
Industry: Manufacturing
The Need
Seizing Growth Potential in Heat Treating
Our middle-market private equity firm client sought to empower its portfolio company operating in industrial manufacturing. The portco was a leader in gas nitriding technology, primarily catering to the automotive, aviation and industrial sectors. The firm aimed to broaden the company’s horizons by identifying new opportunities within heat treating, especially in areas beyond gas nitriding. The goal was to expand its offering through strategic add-ons that leveraged different heat treating technologies, driving further growth and market penetration.
The firm knew it would need a world-class commercial due diligence resource to match its ambitions.
The Challenge
Navigating the Complex Industry Landscape
The private equity firm faced the challenge of exploring a highly specialized sector – heat treating technology – to identify viable add-on opportunities. The task required pinpointing key players, understanding market drivers and evaluating potential target companies that aligned with the portfolio company’s capabilities and ambitions. Budget constraints demanded resourcefulness in delivering valuable insights without compromising quality.
How BluWave Helped
Industry-Specific Research Firm To Drive Expansion
BluWave connected the private equity firm with a PE-grade resource to conduct an in-depth market study, leveraging their expertise in market research and manufacturing. They then uncovered key players, market trends and drivers within the heat treating technology sector. Leveraging their understanding of the end-use industries, including automotive and aviation, the firm identified strategic alignment opportunities.
Their familiarity with furnace manufacturing, heat treating elements and component industries enabled them to analyze competitive processes, production methods and best practices.
The Result
New Pathways to Expansion
The third party firm’s market study equipped the portfolio company with a roadmap for expansion in the heat treating sector. By identifying key players, drivers and market trends, the private equity firm gained insights into new growth avenues. The study not only laid the groundwork for strategic add-on acquisitions but also provided a broader understanding of market dynamics, fostering informed decision-making.
The portfolio company was empowered to consider new technologies and approaches, aligning its offerings with the evolving demands of the automotive, aviation and industrial sectors.
Commercial due diligence is a make or break process in mergers and acquisitions.
In buy-side due diligence, the focus is on the acquiring party, rather than the target company. This makes it distinct from sell-side due diligence, which is conducted by the organization that may be acquired.
“It’s standard operating procedure for private equity firms if they’re buying a company,” says Scott Bellinger, Bluwave’s co-head of research and operations. “No matter how good a company is, if the market is bad, it won’t succeed.”
Buy-side commercial due diligence looks extensively at the target company’s overall viability. It’s typically conducted by private equity firms, investors or other acquiring entities to evaluate risks and opportunities before signing on the dotted line.
We’re going to explore the key aspects of this process in private equity acquisitions, including financial analysis, commercial viability assessment and target company analysis.
Financial Analysis
Understanding a company’s financial health is a crucial aspect of buy-side commercial due diligence.
At this stage, the buyer reviews the target company’s financial statements, including balance sheets, income statements and cash flow statements.
Market size is also an important pre-acquisition consideration.
It helps identify potential financial red flags, such as declining revenue, which could suggest a shrinking market. If too many warning signs arise, the buyer may reconsider moving forward.
Total Addressable Market, Commercial Viability Assessment
A successful acquisition is contingent on the future growth potential of the target company. That’s why a commercial viability assessment forms an integral component of the process.
Here, the total addressable market (TAM) for the target company’s products or services is evaluated. Understanding the TAM provides insights into the potential growth and profitability of the target company, making it a critical metric for prospective buyers to consider.
Another important factor is the competitive landscape within the target company’s market. This evaluation gives the buyer a comprehensive understanding of the company’s positioning, its main competitors and the regulatory environment in which it operates.
A thorough understanding of the competition and industry regulations can provide valuable insights into the target company’s resilience and adaptability in the face of market changes.
Target company analysis is another aspect of buy-side due diligence, and it usually comes toward the end of the process.
While the entire due diligence process evaluates a target company, the goal at this stage is to review operations, management and culture. This is how the buyer identifies issues that could affect the acquisition’s long-term success.
Voice of the Customer
Assessing customer satisfaction, identifying potential customer concerns and understanding customer loyalty can all help better understand the target company’s potential long-term success.
An exact-fit service provider will focus on things like customer lifetime value, retention and how products and services can be improved.
While the entire commercial due diligence process involves looking into the target, firms should also take a close look at a company’s operations, management and culture.
Before signing on the dotted line, it’s important that you not only align on values, but that the teams are a good fit for working together.
This also helps the buyer – usually a private equity firm – understand the potential synergies between the target company and their existing portfolio companies.
Bellinger says that working with an expert third-party to conduct buy-side diligence can be a huge advantage.
“You can get providers who have deep experience in a certain industry or certain types of companies that can perform the study on a lower cost profile than a brand name firm who will have to spend time getting up to speed,” he says. “Our providers already know everything about that industry and have prior experience.”
Buy-side due diligence is a critical process in private equity acquisitions, enabling buyers to make informed investment decisions.
BluWave has expertly vetted commercial due diligence resources on standby to provide comprehensive support during the buy-side due diligence process.
Our research and operations team will connect you with the best fit for your project, ensuring that you have access to the right expertise at every step of the process. Set up a scoping call today.
Bellinger adds: “We have the most amazing bench of buy-side commercial due diligence providers, so we know every buy-side firm in middle-market private equity.”
In an increasingly competitive private equity landscape, mastering commercial due diligence is integral to success. It offers a clear picture of potential investments, allowing firms to mitigate risks and assess value more accurately.
Partnering with a specialized provider offers comprehensive industry, customer and competitive analysis, extending beyond what a generalist group can provide. They offer:
Specialized expertise for informed decision-making
Detailed examination of market dynamics
Effective risk evaluation and mitigation strategies
Every quarter our team analyzes the projects we work on with our 500+ PE firm clients to get a bird’s eye view of the market. We recently compiled our Q1 2023 findings into our BluWave Insights Report. You can request your copy and our client coverage team will be in touch.
Key findings from Q1 ’23 include:
Value creation activity is at an all-time high, matching Q1 2022.
Human capital remains PE’s primary area of focus at 45% of all Q1 activity, also matching an all-time high.
Technology remains a priority at 11% of all Q1 PE activity.
