Cases

Conducting Strategic Due Diligence for an Engineering Company

Background and Challenge

This public limited company was considering acquiring a privately held company that was into cooling tower components and water and wastewater treatment equipment. The target company was the market leader in both the segments for its products viz. the cooling tower and the environment segment. Both the segments had seen good growth, although products of the target company had not seen such growth. There was a synergy between the Target Company and the acquirer in terms of products and customers. The acquirer wanted UC to build a perspective on whether to go ahead or not with the acquisition, considering the target company’s attractiveness and the synergies that existed between them and the acquirer.

Approach and Recommendations

UC studied and analysed the target company, following the steps below:

  • Assessed the addressable demand of the target company for the cooling tower and water and waste water equipment segment by looking at the following pivots

    1) Application industry growth

    2)Customer growth

    3)Scope for the target company’s product offerings

  • Analysed the supply of these products in the industry

    1) Resilience to price pressure for the target company and its competitors

    2) Competitive position of the target company

    3) Threat from new entrants

  • Based on the above analysis, projected the turnover of the target company for the next five years in both the segments
  • Analysed synergies of the target company with the acquirer based on the following pivots

    1) Market synergy

    2) Cost synergy

    3) Operational and Organisational synergy

  • Calculated the present value and identified key risks.

Results

UC recommended the possible options to the acquirer, with details of the risk, the value and other important information.