Value-Enhancing Due Diligence

Our client, a financial sponsor, was in the final process of reviewing a potential acquisition to add to their portfolio. The target was a $200m business that provides commercial satellite bandwidth to the US Government. Although its revenues had declined by 50 percent over a 3-4 year period, the business was projecting growth. Our client asked us to carry out a detailed commercial due diligence exercise to give an overall view and recommendation for whether or not to go ahead.

That involved a thorough review of the relevant markets. We examined the business’s current and projected contracts to look for risks and come up with a more accurate five-year revenue forecast. We assessed its competitors and looked at the industry as a whole.

We identified some long-term risks given that future revenues were projected based on contracts the company had not yet won and where it was likely to face significant competition. Similarly, the target had a very strong set of relationships, but in a very small community of customers. Given that the overall market is highly relationship driven, and the fact that competitors were offering more comprehensive services, PA determined that attracting new customers would be difficult. We highlighted the downside risk, as well as potential upside benefits, outside of the information in the management presentations.

On the basis of our analysis, the client decided not to go ahead with the acquisition.

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