Successful Due Diligence

1 Successful Due Diligence How BCG Supports Strategic Due Diligence This brochure one of a series of eight describing BCG's capabilities in deal transaction and integration underscores the importance of strategic due Diligence to every acquisition. Strategic due Diligence is the process of probing, pinpointing, and prioritizing the key issues that affect a potential acquisition target. It connects to other acquisition phases such as target search, explains the risks of not properly carrying out due Diligence , and uses compelling case studies to demonstrate the benefits of following a rigorous, proven, fact-based methodology to ensure that the deal creates lasting value for the acquirer's shareholders.

2 While acknowledging that every due Diligence initiative is unique to the target, the prospective acquirer, and the prevailing economic environment, the brochure details three phases that lead to a realistic, neutral assessment of the target and the deal, enabling a sound decision on whether or not to make an offer. Introduction Just as a property buyer must assess the integrity of the roof and the propensity for leaks in the basement, so must an acquirer probe into every aspect of the company it is interested in buying. This brochure describes the importance of strategic due Diligence to every deal.

3 Some years ago, a large department store Essentially, strategic due Diligence is a rigorous, operator was forced to sell at a steep discount iterative process of raising and then addressing the retailer it had paid for handsomely less than critical questions. How attractive is the target's three years earlier. The acquirer had believed market? How does its performance compare to that it could leverage the target's access to that of its leading competitors? Is the target too millions of customers, its prowess in database reliant on one major customer? How financially management and direct marketing, and its secure are its key suppliers?

4 What is the caliber strong internet position. However, it had failed to of its top management team? What hard-to-see properly understand its target's business model. vulnerabilities might diminish its value? In particular, the buyer's subpar due Diligence did not uncover the differences between its market Answers to such questions are what enable a and the target's market; nor did it reveal the risks prospective buyer to assess the target's long- of poor sales performance or the low likelihood term value. Due Diligence also examines the of the synergies that never materialized.

5 Synergies of the potential deal, digs deeply into the target's business plan, and reviews the That true story underscores the importance of deal's feasibility the investment required, the due Diligence to every deal. Once an attractive realities of retaining the acquired company's target is in view, it's time to begin the strategic talent, and so on. process of probing, pinpointing, and prioritizing the key issues affecting that target. No two strategic due Diligence projects are the same, of course. Each is unique to the target, the There are several strands of due Diligence that prospective acquirer, and the prevailing market weave together: the financial due Diligence and economic environment.

6 BCG's approach to carried out by investment banks and accountants, due Diligence reflects those realities. Rather than the legal due Diligence managed by law firms, run through a standard checklist of items which the technology or environmental aspects can lead to deal-breaking gaps in analysis our assessed by experts in those fields, and most experts draw on deep experience to focus on importantly the strategic due Diligence that the target's key issues. We apply a well-defined digs deeply into the key business questions. methodology and standardize our processes and documentation to give a predictable look and Doing strategic due Diligence well is just as feel to our results.

7 Our close analysis enables us important. Poor deal preparation is a leading to thoroughly assess the business case for the reason why as many as 55% of all M&A deals acquisition and challenge it, as needed. actually destroy shareholder value. Research by Boston Consulting Group reveals that deals The result is a professional, realistic, and neutral often fail because the target company turned assessment of the target and the deal, allowing out to be the wrong candidate, or its strategic fit for a rational, well-considered decision on was not clear, or the price paid was too much.

8 Whether or not to make an offer. All of those failure points can be mitigated and ideally avoided with an effective due Diligence process. BCG Has Sharpened the Strategic Due Diligence Process for Many Clients. Imagine What We Could Do for You Almost all potential acquirers conduct due Throughout the strategic due Diligence stage, we Diligence on targets, typically bringing in outside interact closely with the client just as we do in expertise to help with the strategic process as every aspect of our involvement with M&A. We well as the financial, legal, and more specialized work at pace, always striving to keep our clients aspects.

9 Ahead of the competition in the deal process. And, we continually emphasize accuracy and However, that is no guarantee that strategic due completeness, applying a range of tools and Diligence will be carried out properly. In the rush techniques to accelerate and reinforce the to get a deal done, an acquirer may succumb to effectiveness of the process. the temptation to take shortcuts or default to ad hoc approaches. Simply using a cookie-cutter Indeed, advanced analytics are at the core of approach adds little or no value and may actually our due Diligence approach.

10 We use powerful increase the risks of the deal failing. digital tools in every due Diligence engagement to gain truly novel insights. For example, we Because every deal is unique in almost every apply analytics software such as Tableau and respect, BCG never resorts to such standard Alteryx to turn data into truly novel insights. approaches. Acknowledging each client's To size markets, we leverage our proprietary circumstances, we blend our fact-based geoanalytics tools, combining client and public analytical, strategic, and industry perspectives data to create dynamic graphic maps that with a willingness to challenge conventional can unlock new perspectives and spark fresh wisdom, supported by deep knowledge of the discussion.