Today we're offering the 2nd half of our Poor Due Diligence thread. Here are tips 4-6:
Legal and Compliance Review – ensuring legal and regulatory compliance through:
a. Regulatory Compliance: Verify adherence to industry regulations and standards especially as it related to product design, certifications and testing.
b. Litigation Check: Check for any ongoing or past litigation that could impact the company.
c. Intellectual Property: Review the status and protection of intellectual property assets including engineering drawing controls and security along with controls over pattern and tooling that may be in located elsewhere in foundries or forge shops.
5. Market and Competitive Analysis - understand the market and competitive landscape especially if you are investing in a market, you may not operate in today.
a. Analyze the target company's position within the market and its competitive advantages. What market share do they have vs. competition. Competitive intensity? Barriers to entry? Unique value propositions difficult to replicate?
b. Customer Base: Evaluate the diversity and stability of the customer base. What is the revenue concentration of their top ten customers over past three years? What kind of seasonal trends are exhibited in the past three years performance?
c. Market Trends: Dig in and educate yourself on market trends, competitor trends including technology and service offering trends that could have potential impacts on the target company.
d. What new products or services are planned for launch in next 12 months? How are those planned, developed and commercialized? Research potential competitor responses to the launch of these new product-services.
6. Expert Consultation - hire industry experts to gain insights into legal, compliance, operational and market-specific risks. They may include product-market specialists, financial, regulatory and environmental.
By implementing these strategies and tactics, you can mitigate the risks associated with poor due diligence and increase the likelihood of a successful M&A investment in the industrial sector.
Next week we'll dive into Integration Challenges!
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