Commercial Due Diligence Case Study

A Rising Star?

For private equity investors in China, commercial due diligence is essential in determining the risk/return profile of potential deals. In this case, our client needed to decide whether or not to proceed with an investment into a fast-growing Chinese agrochemicals company.

Situation
  • US-based private equity investor evaluating an investment in a Chinese agrochemicals company (the ‘Target’)
  • Target seeking funds to launch new crop protection product lines
  • Client needed an answer within 2 weeks
Approach
Stenvall Skoeld’s approach included determining:
  • Industry and market segment attractiveness
  • Suitability of the Target’s strategy
  • Achievability of the Target’s financial forecast
Our research and analysis included:
  • Review of public and subscription-based research and industry publications
  • In-depth management interviews and manufacturing site visits
  • Interviews along the Target’s value chain (e.g. distributors, R&D partners)
  • Interviews and discussions with industry experts
  • Analysis of government and industry statistics
  • Analysis of financial and commercial information requested by the Target
Result
  • Industry analysis showed strong growth ahead but changing competitive landscape favoring larger and more advanced competitors
  • Target had overestimated growth and margin potential of new product lines
  • Due diligence gave strong indication that Target would not come close to achieving its strategic and financial goals
  • Discrepancies between Target’s claims and Stenvall Skoeld’s interview findings raised doubts about management integrity
  • Client decided not to invest but to pursue more attractive opportunities in the sector