Service Area: Merger Planning & Integration: Post Merger Integration
Client Type: Middle Market Private Equity Firm
Service Provider Type: Post Merger Integration Consultant
Industry: Manufacturing: Aerospace
The Need
Forging Unity Across Borders
When a middle-market private equity firm acquired an international aerospace entity, the challenge of seamless integration across borders emerged. Seeking expertise beyond their organization, they turned to BluWave for strategic matchmaking with a post-merger integration (PMI) specialist.
The firm understood the critical role of effective integration in maintaining business continuity and customer trust, and they wanted outside help to do it.
The Challenge
Bridging Gaps in Aerospace Integration
With a multi-country aerospace entity acquisition, the complexities of integration spanned geographical, operational and cultural dimensions. The task of harmonizing processes, systems and customer interactions across 14 countries presented a formidable challenge. The focus was on preserving customer trust, especially with industry giants, while optimizing operational efficiency in the global landscape.
How BluWave Helped
Industry-Specific Resource with International Experience
BluWave’s intimate knowledge of the world-class service providers in its network accelerated the PE firm’s selection of an exact-fit service provider:
Expert Identification: BluWave knew exactly which PMI specialists had aerospace knowledge and cross-border integration experience.
Customized Matching: Through a thorough assessment of the client’s requirements, BluWave matched them with a PMI consultant whose expertise aligned with the specific challenges of aerospace integration.
Strategic Alignment: BluWave ensured that the chosen PMI expert understood the client’s objectives, including maintaining customer trust, achieving operational efficiency and realizing synergies.
The Result
Achieving Integration Excellence
The PMI specialist delivered for the PE firm across the board:
Seamless Transition: The acquired aerospace entity underwent a smooth integration, preserving customer relationships and business continuity.
Operational Excellence: Cross-border collaboration and efficient integration processes contributed to optimized operations.
Customer Trust: Through meticulous execution, customer trust and satisfaction were upheld, especially with industry giants.
Service Area: Commercial Due Diligence: Market Study
Client Type: Middle-Market Private Equity Firm
Service Provider Type: Market Research Firm
Industry: Manufacturing
The Need
Seizing Growth Potential in Heat Treating
Our middle-market private equity firm client sought to empower its portfolio company operating in industrial manufacturing. The portco was a leader in gas nitriding technology, primarily catering to the automotive, aviation and industrial sectors. The firm aimed to broaden the company’s horizons by identifying new opportunities within heat treating, especially in areas beyond gas nitriding. The goal was to expand its offering through strategic add-ons that leveraged different heat treating technologies, driving further growth and market penetration.
The firm knew it would need a world-class commercial due diligence resource to match its ambitions.
The Challenge
Navigating the Complex Industry Landscape
The private equity firm faced the challenge of exploring a highly specialized sector – heat treating technology – to identify viable add-on opportunities. The task required pinpointing key players, understanding market drivers and evaluating potential target companies that aligned with the portfolio company’s capabilities and ambitions. Budget constraints demanded resourcefulness in delivering valuable insights without compromising quality.
How BluWave Helped
Industry-Specific Research Firm To Drive Expansion
BluWave connected the private equity firm with a PE-grade resource to conduct an in-depth market study, leveraging their expertise in market research and manufacturing. They then uncovered key players, market trends and drivers within the heat treating technology sector. Leveraging their understanding of the end-use industries, including automotive and aviation, the firm identified strategic alignment opportunities.
Their familiarity with furnace manufacturing, heat treating elements and component industries enabled them to analyze competitive processes, production methods and best practices.
The Result
New Pathways to Expansion
The third party firm’s market study equipped the portfolio company with a roadmap for expansion in the heat treating sector. By identifying key players, drivers and market trends, the private equity firm gained insights into new growth avenues. The study not only laid the groundwork for strategic add-on acquisitions but also provided a broader understanding of market dynamics, fostering informed decision-making.
The portfolio company was empowered to consider new technologies and approaches, aligning its offerings with the evolving demands of the automotive, aviation and industrial sectors.
Commercial due diligence is a make or break process in mergers and acquisitions.
In buy-side due diligence, the focus is on the acquiring party, rather than the target company. This makes it distinct from sell-side due diligence, which is conducted by the organization that may be acquired.
“It’s standard operating procedure for private equity firms if they’re buying a company,” says Scott Bellinger, Bluwave’s co-head of research and operations. “No matter how good a company is, if the market is bad, it won’t succeed.”
Buy-side commercial due diligence looks extensively at the target company’s overall viability. It’s typically conducted by private equity firms, investors or other acquiring entities to evaluate risks and opportunities before signing on the dotted line.
We’re going to explore the key aspects of this process in private equity acquisitions, including financial analysis, commercial viability assessment and target company analysis.
Financial Analysis
Understanding a company’s financial health is a crucial aspect of buy-side commercial due diligence.
At this stage, the buyer reviews the target company’s financial statements, including balance sheets, income statements and cash flow statements.
Market size is also an important pre-acquisition consideration.
It helps identify potential financial red flags, such as declining revenue, which could suggest a shrinking market. If too many warning signs arise, the buyer may reconsider moving forward.
Total Addressable Market, Commercial Viability Assessment
A successful acquisition is contingent on the future growth potential of the target company. That’s why a commercial viability assessment forms an integral component of the process.
Here, the total addressable market (TAM) for the target company’s products or services is evaluated. Understanding the TAM provides insights into the potential growth and profitability of the target company, making it a critical metric for prospective buyers to consider.
Another important factor is the competitive landscape within the target company’s market. This evaluation gives the buyer a comprehensive understanding of the company’s positioning, its main competitors and the regulatory environment in which it operates.
A thorough understanding of the competition and industry regulations can provide valuable insights into the target company’s resilience and adaptability in the face of market changes.
Target company analysis is another aspect of buy-side due diligence, and it usually comes toward the end of the process.
While the entire due diligence process evaluates a target company, the goal at this stage is to review operations, management and culture. This is how the buyer identifies issues that could affect the acquisition’s long-term success.
Voice of the Customer
Assessing customer satisfaction, identifying potential customer concerns and understanding customer loyalty can all help better understand the target company’s potential long-term success.
An exact-fit service provider will focus on things like customer lifetime value, retention and how products and services can be improved.
While the entire commercial due diligence process involves looking into the target, firms should also take a close look at a company’s operations, management and culture.
Before signing on the dotted line, it’s important that you not only align on values, but that the teams are a good fit for working together.
This also helps the buyer – usually a private equity firm – understand the potential synergies between the target company and their existing portfolio companies.
Bellinger says that working with an expert third-party to conduct buy-side diligence can be a huge advantage.
“You can get providers who have deep experience in a certain industry or certain types of companies that can perform the study on a lower cost profile than a brand name firm who will have to spend time getting up to speed,” he says. “Our providers already know everything about that industry and have prior experience.”
Buy-side due diligence is a critical process in private equity acquisitions, enabling buyers to make informed investment decisions.
BluWave has expertly vetted commercial due diligence resources on standby to provide comprehensive support during the buy-side due diligence process.
Our research and operations team will connect you with the best fit for your project, ensuring that you have access to the right expertise at every step of the process. Set up a scoping call today.
Bellinger adds: “We have the most amazing bench of buy-side commercial due diligence providers, so we know every buy-side firm in middle-market private equity.”
In an increasingly competitive private equity landscape, mastering commercial due diligence is integral to success. It offers a clear picture of potential investments, allowing firms to mitigate risks and assess value more accurately.
Partnering with a specialized provider offers comprehensive industry, customer and competitive analysis, extending beyond what a generalist group can provide. They offer:
Specialized expertise for informed decision-making
Detailed examination of market dynamics
Effective risk evaluation and mitigation strategies
Every quarter our team analyzes the projects we work on with our 500+ PE firm clients to get a bird’s eye view of the market. We recently compiled our Q1 2023 findings into our BluWave Insights Report. You can request your copy and our client coverage team will be in touch.
Key findings from Q1 ’23 include:
Value creation activity is at an all-time high, matching Q1 2022.
Human capital remains PE’s primary area of focus at 45% of all Q1 activity, also matching an all-time high.
Technology remains a priority at 11% of all Q1 PE activity.
Strategic sourcing and procurement is a crucial process that aids businesses to balance revenue growth strategies, smart cost containment, sourcing and operations configuration.
“When the economy’s going down, people aren’t making as much money as before,” says Scott Bellinger, BluWave’s co-head of research and operations. “Even if they’re maintaining or increasing their sales, the cost is going up. Every dollar you can capture in a downturn is huge for business.”
The process entails a strategic outlook on possibilities and requires a well-executed implementation to achieve lower total cost and support revenue growth. In essence, the objective is to attain a balance between operational efficiency and financial performance.
“There are companies that are really trying to build out a platform that allows them to be a strategic sourcing provider to large manufacturers,” says one of our BluWave-grade service providers, Don Jenkins* of Supply Chain Management Co. “So they’re going to help them acquire components from around the world from suppliers. They’re going to administer those contracts. They’re going to handle the logistics of any regulatory issues that fall into that.”
Strategic sourcing is an integral part of supply chain management that provides a systematic approach to assure timely delivery of goods and services and decrease the risk and costs involved in the supply chain.
Investing in supplier relationships is a key aspect of this process. Let’s look at it in more detail.
Outsourcing non-core products or services: A company could contract a vendor or supplier who can deliver products or services within the required time frame and without any delays or issues.
“I think where it gets more proprietary, a little more specialized, I think those areas are less likely to maybe outsourced,” Jenkins says. “Whereas when you look at kind of commodity products and commodity processes, that’s where the outsourcing’s probably more likely to happen.”
Creating partnerships with suppliers for key products: An organization might opt to centralize all purchases with a single vendor to avoid high delivery fees or fluctuating prices for goods.
Procuring commodities internationally: A business may identify a supplier or vendor who can provide multiple products or deliveries simultaneously from different regions around the world.
Spend analysis: Analyzing the company’s spending patterns to identify areas where costs can be reduced.
Establishing clear criteria for supplier selection and evaluation: Businesses can use scorecards or other formats to select the suppliers that best meet the company’s needs.
Negotiating contracts: This step helps organizations achieve the best possible terms and conditions.
Developing strong relationships: Building long-term relationships ensures a stable and reliable supply of goods and services. Third-party resources with existing supplier relationships are a great way to accelerate this step.
“The businesses are going to want to have strong relationships with those suppliers,” Jenkins says. “They’re going to handle all the logistics-related issues, and they’re going to administer those contracts.”
Advanced analytics: Identify opportunities for cost savings and supplier performance improvement through data. With the explosive growth of AI tools, this is easier than ever..
Focusing on total cost of ownership: The initial purchase price should not be the only factor when evaluating suppliers.
Cost savings through economies of scale: By consolidating purchases and leveraging their purchasing power, companies can achieve cost savings through economies of scale.
Improved efficiency: Strategic sourcing can help improve the efficiency of the procurement process by reducing the time and resources required to identify and evaluate suppliers.
“There’s not a large variance in pricing that exists because of the nature of the commodity product,” Jenkins says. “So you have different areas of the world, potentially, where you can go to get that product, and the magic is just having someone that can organize it, find it, administer the contract, get the logistics set up.”
Access to expertise and technology: Organizations may access to expertise and technology that they may not have in-house. This can help improve the quality of products and services and reduce costs.
Improved supplier relationships and performance: Strategic sourcing involves building long-term relationships with suppliers. This can help improve supplier performance and reduce risk.
Reduced risk: By building strong relationships with suppliers and implementing a supplier relationship management program, companies can reduce the risks associated with their supply chain.
Increased agility: Businesses that correctly implement strategic sourcing can more quickly respond to changes in the market.
“It’s like ‘What pieces of what we do can we outsource, not have to have our full-time resources committed to this and still get the job done?'” Jenkins says of companies’ approach to strategic sourcing. “In what cases does it make sense to outsource a product or service or process as opposed to trying to do it yourself?”
Businesses are concerned with two types of procurement: indirect and direct.
Indirect procurement means cutting costs from anything that’s not core to the business product or service being done. Examples include company cars, postage, travel spend, telecom providers, and pens and pencils, to name a few.
Bellinger says expert third parties are highly motivated to help with this.
“The benefits would be that you can engage a firm that can take out costs of your business for non-core expenditures,” he says. “The beauty of it is these groups work off of a gain-share model, so they have an incentive to help you save money.”
Direct procurement, on the other than, is related to lowering COGS via things like components, manufacturers and resource suppliers.
“As your supplier base continues to raise prices, you want to engage direct procurement groups that can resource your suppliers on a lower cost profile,” Bellinger says.
Step 1: Assess your current procurement process: This involves analyzing your current procurement process to identify areas for improvement and opportunities for cost savings.
Step 2: Identify products or services to outsource: This involves identifying the products or services that can be outsourced to achieve cost savings and improve efficiency.
Step 3: Evaluate potential suppliers: This involves evaluating potential suppliers based on criteria such as cost, quality, reliability, and delivery time.
Step 4: Negotiate contracts and establish service level agreements: This involves negotiating contracts with suppliers to achieve the best possible terms and conditions, and establishing service level agreements to ensure that suppliers meet the company’s requirements.
Step 5: Monitor and evaluate supplier performance: This involves monitoring supplier performance to ensure that they are meeting the company’s requirements and taking corrective action if necessary.
Proprietary technologies and products: Organizations should assess whether outsourcing will compromise their proprietary technologies and products that give them a competitive edge.
Customer relationships: Firms should also consider the impact on their customer relationships, particularly if they have strong ties.
Commodity products and processes: Businesses may want to outsource commodity products and processes that do not provide a competitive advantage. This can help them reduce expenses and enhance productivity.
Cost savings: Enterprises must evaluate the possible cost savings that can be attained through outsourcing.
Supplier capabilities: Firms should assess the abilities of potential suppliers to ensure that they can meet the company’s requirements.
Risk management: Organizations must consider the risks associated with outsourcing and take measures to mitigate those risks.
“There are companies that have built up a network of supply sources and a network of transportation solutions to get a product from A to B,” Jenkins says. “If you’re a large manufacturer, and this happens to be a product that you don’t deal with every single day in large quantities, but every once in a while you need it, and when you need it, you need it badly, that is a pretty good candidate for an outsource relationship.”
The expertly vetted third-party resources in the Business Builders’ Network understand the importance of strategic sourcing to get the most out of your investment.
Tapping into industry-specific service providers who know not only your business, but also your competitors as well as you do can provide a significant advantage.
No matter what objectives your PE firm, portco, private or public company has, our research and operations team will assess your needs and provide a short list of best-fit solutions within a single business day.
*Privacy is important to us. While the source and company name have been changed, these are real quotations from a real service provider in the BluWave Business Builders’ Network.
