Due diligence and establishment of a new business segment in vertical diversification
Potential analysis | Strategy development | Due diligence | Carve-out
A well-known German FMCG manufacturer decided to refocus on its core competencies and discontinue various production areas not directly serving the core product. This affected e.g. the whole production of packaging materials. In the course of this process, one of the company's main suppliers expressed an interest in an acquisition and commissioned a corresponding due diligence.
Phase 1: Potential analysis
The packaging production, including the logistics areas, was integrated into the building and infrastructure of the main production. Since this was to remain the case in the medium term, the possibilities of a physical separation from the other company areas were examined. I evaluated the technical status of the equipment and compared the production's KPIs with industry benchmarks. I took the current order structure into account and compared on this basis the target and actual performance, capacity utilization, performance, and target costs.
Based on that, it soon became apparent there was need for optimization in production.
Now it was possible to determine the potential of an acquisition and make an initial estimate of the takeover costs.
Phase 2: Strategy development
The potential buyer decided to pursue the project based on my results and asked me to create a development plan and devise a strategy to make the business unit viable as an independent company after a carve-out.
I identified additional sales potentials and competitive situations and devised various market development concepts. In order to achieve target costs in line with the market, I developed an optimization and target concept for production. In addition to performance enhancement and LEAN optimization of production, this also included strategic investment planning to replace existing equipment with more efficient alternatives in the medium term and thus support the overall strategy. I also defined which administrative and indirect areas would have to be reinstalled or could be provided by the acquirer. Earnings potentials, investment costs and risks were thus made transparent for various scenarios and a development strategy following the acquisition was created.
Phase 3: Due Diligence
Once the potential of an acquisition had been analyzed, a purchase price could be specified. Due to the long-standing business relations negotiations were concluded quickly and an agreement was signed.
Phase 4: Carve Out
After completion of the acquisition the administrative processes were transferred to the acquirer and gradually connected to its systems. Since a completely new business unit was established now, cost accounting and sales functions were installed and substantiated.
Extensive training and optimization measures were carried out for production in order to increase performance and thus bring the new company to the market as an independent entity. After the project the new unit established itself well and so the business area was expanded quickly through the acquisition of further companies and today is a substantial part of the group.