Due diligence and establishment of a new business segment in vertical diversi­fi­cation

Potential analysis | Strategy development | Due diligence | Carve-out


Initial situation

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.