Commercial Due Dilligence

Commercial due diligence: Strategic analysis of the intrinsic value of companies

Performing a commercial due diligence is an essential part of almost every transaction with investors on the buy side and the sell side. The two key questions are: why has the company been successful in the past, and how successful can the company be in the future?

To answer these questions, several factors need to be analyzed: business model, relevant markets, competition, customer feedback, and the company's positioning in its markets. In addition, the company’s potential is examined and evaluated. Particular importance is attached to analyzing the factors that make a company competitive and thus fit for the future: its product and service differentiation, innovation strength, supply chain, degree of digitalization, as well as customer structure, management, alongside its access to qualified personnel and ESG potential.

Components of a commercial due diligence:

Particularly in a time of profound change, strategic analyses are imperative to identify the business dynamics of the market, customer, and competitive environment and to model their impact on the company's competitiveness dynamically. This is the very purpose of any commercial due diligence. The typical scope of a commercial due diligence consists of the following topics:

  • Business model
  • Product and service range
  • Market development
  • Access to customers and customer feedback on key purchasing criteria
  • Competitive dynamics and competitive position
  • Business plan
  • Strengths, weaknesses, opportunities, threats (SWOT)

A commercial due diligence examines quantitative and qualitative aspects of the company, competition, and market environment. To be able to perform an excellent commercial due diligence in a short time, commercial due diligence teams must have a high level of industry expertise as well as the necessary functional due diligence skills.

Commercial Due Diligence with CODEX Partners

With approx. 400 successfully executed commercial due diligence projects for the buy and sell side, CODEX Partners is one of the leading strategy consultants for investors and mid-sized companies in the DACH region in industry, IT, health care, consumer goods, and services sectors.

Your contact persons for Due Diligence

Network

An important success factor of our work is the involvement of experts in our teams. CODEX Partners leverages a large network of industry and technology experts that we have built up since our foundation.

References

Since its foundation, CODEX Partners has carried out over 400 projects together with our clients. With our expertise as a leading transaction adviser in the German-speaking region, we assist both national and international private equity investors.

Sort By: Direction:
  • Aug 2022

    Gyrus Capital has reached an agreement to acquire Retail Consult, Wysupp and Evertrack

    CODEX Partners provided the Commercial Due Diligence of Retail Consult, Wysupp and Evertrack to Gyrus Capital

  • Aug 2022

    Deutsche Beteiligungs AG has reached an agreement to acquire vhf Gruppe

    Industry, Healthcare, Healthcare, Industry, Industry

    CODEX Partners provided the Commercial Due Diligence of vhf Gruppe to Deutsche Beteiligungs AG

  • Aug 2022

    Bregal has reached an agreement to acquire Advoware

    CODEX Partners provided the Commercial Due Diligence of Advoware to Bregal

  • Jul 2022

    Halder has reached an agreement to acquire CPM Group

    CODEX Partners provided the Commercial Due Diligence of CPM Group to Halder

  • Jun 2022

    Dental Direkt GmbH has reached an agreement to acquire DOCERAM Medical Ceramics GmbH

    Healthcare

    CODEX Partners supported the acquisition process and created an integration concept

  • Jun 2022

    VR Equitypartner: Mezzanine financing of SEMENTIS (Holding company of QSIL)

    Industry

    CODEX Partners provided the Commercial Due Diligence of QSIL to VR Equitypartner

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What types of due diligence do exist?

There are the following types of due diligence:

  • Commercial due diligence (analysis of the business model and corporate strategy, market, customer, and competitive intentions, and business plan validation)
  • Financial due diligence (examination of the assets, earnings and financial situation)
  • Legal Due Diligence (examination of legal factors)
  • Tax Due Diligence (examination of tax law factors)
  • Operational due diligence (examination of service provision within the company;
    in particular also of technical processes)
  • Compliance due diligence (examination of compliance with rules and ethical
    principles)
  • IT due diligence (examination of the IT landscape, the software systems used in
    the company and cyber security)
  • ESG due diligence (review of sustainability with regard to environment, social,
    governance)

What is examined during a due diligence?

In a due diligence review, opportunities and risks are analyzed in advance of an intended transaction (in this case, company acquisition or sale, IPO, investment). Based on the purpose, the areas to be examined vary. The due diligence review is initiated by the buyer or seller of the company and carried out in the context of upcoming transactions.

In the case of a company purchase or investment, the legal, tax, economic and financial factors as well as the commercial and strategic aspects of the target company are examined in particular. Depending on the business model, other specific aspects, such as environmental assessments (ESG reviews), may be relevant to the review.

What is our contribution?

  • We provide buy-side and commercial-vendor due diligence.
  • Based on our operational project experience, we also offer operational due diligence.
  • For software companies, we are able to conduct software due diligence.
  • With approx. 400 completed projects in our portfolio, we are the market leader for commercial due diligence in the German-speaking region.
  • Our projects cover all major industry sectors: industry, IT, healthcare, consumer and services.
  • Most of our projects are international.
  • To access the markets, we trust our international team. We work closely together with partners and expert networks that we use for market research.

Who performs a due diligence review?

The due diligence is mandated by the buyer/investor or by the target company (seller) itself. Depending on the type of due diligence (e.g., commercial due diligence), the process is usually carried out by experts such as strategy consultants, tax consultants/auditors or by technical experts.

Why is a due diligence audit important?

A due diligence review helps to identify all relevant opportunities and risks of a company in advance. A distinction is made between the following 3 types of opportunities and risks:

  1. Economic opportunities and risks: The purchase of a company has a direct impact on the economic situation of the buyer. Therefore, a systematic analysis of strengths and weaknesses is essential as a safeguard for the buyer.
  2. Legal risks: Here we examine the extent to which legal issues can lead to risks to the company's existence and liability. Aspects of competition law are also examined here.
  3. ESG opportunities and risks: Risks relating to the environment, corporate governance and compliance with the law, as well as social factors (treatment of employees, customers, etc.). In other words, ESG is about "human benefit" or the value the company adds to people (especially employees and customers, the environment, and society). ESG risks can result in penalties or damage to a company's image. Positively speaking, added value can be created through a consistent ESG strategy.

What is the purpose of due diligence analysis in the acquisition of a company?

The due diligence analysis is an important part of a successful corporate transaction. It helps the buyer to identify the opportunities and risks associated with the purchase. The results of the analyses are summarized in due diligence reports, e.g., Commercial Due Diligence Report, Financial Due Diligence Report. Based on the expert assessments, the buyer can get a comprehensive picture of the object of purchase and derive a purchase price. Many aspects analyzed in the due diligence play a role in the offer price, e.g., growth prospects, risks in the market environment, synergy potential, gaining market share and many more.

What is Commercial Due Diligence?

An investor invests in the future of a company and not in the past. As a result, a commercial due diligence should answer 2 questions: Why was the company under review successful in the past and how successful is it likely to be in the future and for what reasons? This is exactly where commercial due diligence comes in. The focus is on a careful examination of the business model, the relevant market environment (market drivers, trends, market size, market share, etc.) and the positioning in the current and future competitive environment. In addition, the resilience of current customer relationships, as well as future growth potentials are of interest with which the business planning of the target company can be validated.

If commercial due diligence is performed for the seller (sell-side), i.e., of the target company, it is referred to as commercial vendor due diligence, which provides potential investors with in-depth insights into the company, which is then validated (or not) by other strategy consultants from the buyer side (buy-side).

What characterizes excellent commercial due diligence?

Commercial due diligence focuses on the future development of the target company and its marketability. An excellent commercial due diligence creates clear answers to the 2 questions: Why was the company under review successful in the past and how successful is it expected to be in the future and substantiates these questions through analyses, interviews with management, experts and customers. Industry knowledge and experience in conducting commercial due diligence are important prerequisites for achieving results in the short time available. In the retrospective, the quality of a commercial due diligence is shown by the actual development of the target.

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