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
- 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
