Situation

• China focused private equity firm evaluating investment in a Chinese engineering company providing clean coal technologies (the ‘Target’).
• Target seeking funds to commercialize IPR-protected technology.
• Success depended on ability to compete with dominant technology which already had a 91% market share.
• An individual involved in the development of the Target’s technology was offering competing solutions raising questions about the value of the Target’s IPR.

Approach

Identified key issues, including:

• Industry and market segment attractiveness
• Competitiveness of Target’s technology
• Suitability of strategy
• Achievability of financial forecast
• Ability to enforce IPR

Our research and analysis included:

• In-depth management interviews and site visits.
• Interviews all along the Target’s value chain to obtain exclusive information.
• Interviews and discussions with independent industry experts and influencers.
• Detailed analysis of expected customer acceptance of the Target’s offering.
• Obtaining expert estimates about future end-user compliance with emission guidelines (key driver of demand).
• Analysis of government and industry statistics.
• Creating financial forecast based on realistic assumptions to support the client’s return analysis.

Result

• Analysis revealed that the dominant technology was more competitive in an environment of low compliance with environmental regulations.
• We concluded that stricter enforcement would significantly increase the competitiveness of the Target’s technology due to lower total cost.
• Recommended Target to initiate IPR infringement case which it later won
• The client invested in the Target at a favorable entry multiple.
• The Target – now the market leader in its niche – is on track for a domestic IPO.

Team member comment:

“Given that the technology was unproven, investigating customer acceptance was key. The fact that customer acceptance depended on so many different variables made this a challenge. For example, a power plant operator burning high-sulfur content coal would benefit more from using the Target’s technology than an operator burning low sulfur coal. There was a whole range of these variables, some more easily quantifiable than others. In the end, a combination of interviews with existing and potential customers and analyzing total cost of ownership gave us the answer.”