Our Approach
to Due Diligence
Market Due Diligence
Our approach to conducting due diligence includes performing traditional due diligence research and then complementing the data with qualitative market research. As explained here, "traditional" due diligence relies on reviewing financial documents, calculating market capitalization, assessing documentation provided by the target, and the like. "Market" due diligence, on the other hand, is a bit more dynamic and much more an art.
The process of market due diligence includes more than just analyzing financial documents. Our market due diligence process locates and assesses qualitative market data that is not generally available, and rests upon several key features: Thorough, Unbiased, and Discreet.
Thorough
Traditional due diligence focuses on public data and reports provided by the target company. This includes valuations based on market capitalization, reviewing income statements to assess revenues and profits, and assessing assets and liabilities on the company’s balance sheet. This information is generally either publicly available or readily made available by the target, and is often the starting point that private equity firms and investors use to evaluate potential targets, but it usually falls far short of painting the complete picture.
Market due diligence goes further than traditional due diligence by analyzing market share in undisclosed markets and locating information about a target that is either not generally available or not volunteered by the target. Ultimately, market due diligence uncovers facts and insights that even the target company isn’t aware of.
Our market due diligence process includes uncovering all stones and tracking down all paths until we reach a dead end. Only then can the process be considered “complete,” and the full picture of the target come into focus. Pill Hill Partners has the knowledge to know where to look, and the experience to know how to track a source until all useful information is obtained.
Unbiased
As previously mentioned, traditional due diligence involves analyzing financial documents and other generally available information. This information is often drafted by the target or chosen by the target to provide to an acquiring firm. While we are not suggesting that this information is inaccurate, it must be viewed in light of its author.
Market due diligence uncovers useful information that is unbiased and reliable. By assessing the target in light of its market, information can be gained from sources that have no interest in the target. Market data may be gathered from customers, suppliers, and other market participants who have no “skin in the game” and provide honest and helpful insights without any taint of bias.
Our market due diligence process gathers data from independent sources, often without the source of the information even knowing that such a process is taking place. This process ensures that the information is unbiased and reliable, providing the most effective means of acquiring actionable information.
Discreet
Market due diligence is a private endeavor. In many situations, the mere process of due diligence can create problems that can slow or completely halt a deal. Effective market due diligence includes conducting research without disrupting the target company or alerting its employees, competitors, or shareholders of any imminent or potential change in ownership.
Discretion is important in several situations. Often target management will not want to alert employees that the business is for sale. The potential sale of a company leads to uncertainty amongst the current team, possibly resulting in reduced productivity or departure. This consequence is also a negative from the point of the acquiring firm who intends for operations to continue as normal post-acquisition. Another consideration for maintaining discretion is to not alert customers, suppliers, or competitors that a potential change in ownership is in work. Customers may have doubts as to whether their needs will continue to be met. Suppliers might turn towards competitors to ensure their goals are met, and competitors may attempt to take advantage of any potential uncertainties.
In any situation, it is important to maintain the status quo for both the benefit of the target and the acquiring firm. Maintaining discretion is a difficult undertaking, and to be effective, must be conducted by experienced and savvy professionals who know how to extra information from a target without them even knowing, or at least not being aware of why they are being questioned. Market due diligence from Pill Hill Partners focuses on discreet communications, assessments, and research to provide actionable information without employing disruptive tactics.