Situation

• US-based private equity investor evaluating an investment in a Chinese aluminum processing company (the ‘Target’).
• Target seeking funds to launch a new manufacturing line producing pharmaceutical packaging foil.

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 initial analysis identified two key issues (i) the Targets ability to remain profitable in its existing core business of aluminum curtain walls and (ii) their chances of developing new customers for its pharmaceutical packaging foil. To address these issues SSCO research included:

• Interviews along the Target’s value chain (e.g. distributors, R&D partners).
• Interviews and discussions with real estate and construction industry experts in the region of China where the Target sold its existing products.
• Interviews with potential pharmaceutical clients.

Results:

• Industry analysis showed despite a weakening overall real estate and construction sectors, the segments where to Target’s products where used – primarily government and public building – would remain stable over the coming years.
• The pharmaceutical packaging foil was attractive however our assessment was that the Target would not be able to compete with established player who were expanding capacity and already had strong relationships with customers in the regions.
• Scenario analysis gave strong indication that Target would not come close to achieving its strategic and financial goals.