BCG’s Due Diligence Module: Unlocking Value Creation Potential
In the complex process of acquisition or merger, due diligence is a crucial component that helps companies assess the target’s growth prospects, potential value creation, and synergy opportunities. Boston Consulting Group (BCG) has developed a comprehensive module to support this strategic decision-making process.
Putting Historical Performance into Context
The business plan assessment module provides an objective evaluation of the target company’s growth prospects and value creation potential by analyzing:
- Historical performance
- Market trends
- Competitive positioning
- Strategic initiatives
This analysis helps acquirers understand the feasibility of the target’s business plan, identify key risks, and uncover upside opportunities.
Example
If a target company is operating in a growth market but has lost ground to competitors due to operational problems, BCG’s assessment would scrutinize the company’s plans for turnaround and require substantial evidence to support its claims. Similarly, identifying potential synergy opportunities and quantifying them above and beyond the plan is crucial in this module.
Synergy Potential: Unlocking Hidden Value
Strategic and industrial buyers are particularly interested in understanding what kinds of synergies they can expect on both top and bottom lines. BCG’s review of potential synergies involves:
- Verifying details with management
- Gauging comparable prior transactions
- Scenario-building to determine the best estimates of synergies weighted by their probabilities
To overcome anti-trust rules, BCG uses “clean teams” - neutral outside advisors who can generate analyses needed for synergy estimation while maintaining firewalls between deal parties.
Deal Feasibility: Assessing Internal and External Factors
The final element of full-scope due diligence involves assessing the feasibility of the deal through five lenses:
- Acquirer’s internal resources
- Management team quality
- Status of other bidders
- Necessary measures to retain key people
- Financing needs
- Integration requirements
BCG’s advanced digital tools and proprietary software can help acquirers streamline synergy estimation and post-merger integration planning. For example, BCG applied artificial intelligence software to combine “spend cubes” from two large industrial companies across millions of individual transactions, enabling the derivation of consolidated purchasing categories for assessing procurement synergies.
BCG Adds Value in Due Diligence
BCG’s due diligence module stands out by:
- Putting value creation first and focusing on definition of a clear rationale that drives shareholder value
- Providing a holistic perspective, considering due diligence as an integral part of the end-to-end deal process
- Offering a tailored approach, recognizing that no two deals are alike
By leveraging BCG’s expertise and advanced tools, acquirers can make informed decisions, unlock hidden value, and drive long-term success.