Case Study: Commercial Due Diligence, Food
Our client needed to decide how to proceed with an investment into a Chinese organic food company.
In this case, our client needed to decide how to proceed with an investment into an organic food company in Northeast China.
- China-based private equity investor evaluating an investment in a private Chinese company producing, processing and marketing organic grains and beans (the ‘Target’)
- Target was seeking funds to secure long-term supply of organic produce, develop its two brands, and enter new markets across China
- Client needed to understand if the Target had an appropriate strategy and the capability to execute it
Stenvall Skoeld’s approach included determining:
- Industry and market segment attractiveness
- Suitability and achievability of the Target’s strategy
- Strength of the Target’s brands
Our research and analysis included:
- In-depth management interviews, production and processing site visits
- Interviews along the Target’s value chain (e.g. distributors, R&D partners)
- Brand assessment and benchmarking of organic foods brands in three Chinese cities, including in-store analysis at leading supermarkets and interviews with store attendants and customers
- Analysis of financial and commercial information provided by the Target
- While industry analysis showed strong future growth prospects for organic food in China, the due diligence revealed that the Target’s brands were weaker than our client had expected:
- Since the scalability of the Target’s business model depended on its products winning on supermarket shelves across China, this realization was troubling.
- Management due diligence also showed a lack of team members with experience building consumer brands.
- Armed with a more realistic view of the Target’s strengths and weaknesses, the Client revised its valuation and also changed the structure of its investment. The Client also decided it would have to play a more active role post-investment.
Our advisory services support clients when selling or buying a business, establishing joint ventures and partnerships, securing financing, valuing a business, or navigating other M&A related issues involving China and Southeast Asia.