The key to understanding a business is having deep industry knowledge and the capacity to evaluate the competitive landscape and the technological trends along the industry’s value chain—attributes that Kearney consultants have developed over many years of industry work.

Getting to know your target

Besides market opportunities, the target’s operational improvement potential is of major importance in a successful acquisition. In fact, we believe that failing to inspect the company’s operations can damage even the most promising acquisitions. Deals that appear attractive initially—specifically for generating longer-term value—often fail as a result of internal and structural inefficiencies that go unnoticed during the pre-purchase commercial due diligence. Such issues often prevent the newly formed company from capturing value quickly.

We work with many leading acquirers—private equity firms and traditional investors—to conduct operational due diligence of target companies as a standard process that complements commercial due diligence. Through commercial due diligence—a detailed review of financial, legal, and environmental data—we provide clients with an excellent view of asset value and its mid-term development. Then, with operational due diligence, which comprises the in-depth assessment of select key business areas, we systematically assess the top- and bottom-line potential of a target company, providing the details needed to fully assess its short-term value.

Future performance

The beauty of operational due diligence is that it is hypothesis-driven: We rely on our extensive knowledge to develop hypotheses of the future performance of the industry, competitors, and the target, thus developing insights into the company’s potential success. We determine the focus areas based on experience, so they vary case by case. However, there are four areas that consistently comprise and benefit from our operational due diligence:

Marketing and sales
Purchasing
Manufacturing and supply chain
General services and administration

Furthermore, our experience shows that sales "push" and pricing opportunities can yield tangible results even in the very short term. Therefore, we also include these often-neglected areas in our operational due diligence to accelerate the company’s performance and create greater value.

We believe the considerable benefits gained through operational due diligence are worth the extra effort. However, we also strongly recommend performing commercial and operational due diligence in combination to ensure deals are successful in both the short and long term.