Commercial Due Diligence Services
How quickly can CDD projects in the service segment be realised on a short-term basis?
CODEX Partners can start CDD projects in the service segment at very short notice, as a quick start date is part of our business model and is expected by investors. How short-term the Commercial Due Diligence can come to important conclusions depends very much on the data situation, the availability of industry experts and often also on the access to management. As with Commercial Due Diligence in other industries, figures, data and facts on the earnings, assets and financial situation are necessary to assess the success of the business model in retrospect. Basically, the exact timing of a Commercial Due Diligence in the service segment depends on the scope of the project, the respective industry, as well as the size of the company. The easier it is to collect industry data or data from competitors, the more quickly the Commercial Due Diligence can be carried out.
A buy-side Commercial Due Diligence in the service sector can be completed in around four weeks. A Commercial Vendor Due Diligence usually takes longer, as more coordination rounds with the vendor, M&A advisor and other due diligence areas (e.g., financial due diligence) are required here.
What difficulties can arise when implementing a CDD for service industries?
Service companies can have highly diverse business models. There is no such thing as "the service company" in the narrow sense. A management consultancy, a provider of continuing education, IT service provider or a craft enterprise are ultimately service providers.
One of the difficulties in conducting a CDD for service companies is the often limited availability of data. For example, management consultancies often do not record the profitability of the projects they carry out. The network of relationships also plays a major role for service companies. In short: How many points of contact are there with the client, at what level (decision-makers) do these relationships exist, or how stable is the current personnel structure and which people are decisive for the company's success.
What is meant by an analysis of market activities in a Commercial Due Diligence for service companies?
The analysis of the relevant market in which the service company operates is one of the most important areas in a Commercial Due Diligence. First of all, it is analysed which factors incluence (drive) the market. Example: A consulting company for energy efficiency. Especially in the current environment of rapidly rising energy costs, many consumers and companies ask for this service out of purely economic interest. Energy costs thus drive the demand for this type of consulting service. In addition, this market is also driven by regulation and taxation of emissions. In the next step, the trends for the market drivers are evaluated to assess in which direction the drivers will move in the future.
Finally, the volume of the relevant market in which the service company operates is then determined and forecasted into the future.
Why is the customer analysis important for a service company?
The customer analysis for service companies ideally provides information about the sustainability and growth potential of the company. In addition, the analysis helps to identify potential risks for the company. A stable and diversified customer base is important for sustainability. For example: If a craft company has many smaller, standardised projects with customers from different industries, the project portfolio is well diversified and tends to have fewer warranty claims. If, for example, a training provider focuses on training in IT management, cyber security, or cloud computing, these are topics that promise growth in the future, while classic user training for office software is becoming increasingly commoditised. From the customer's point of view, the only way to differentiate yourself as a training provider is through the service and quality of the trainers; the training content is largely determined externally.
Why does a CDD for companies in the service sector analyse the supplier structure as well as access to personnel?
The supplier structure is an essential parameter when conducting a Commercial Due Diligence in the service sector. The example of customer service in the building technology sector clearly shows the extent to which the service is dependent on the supplier structure; supply bottlenecks in this segment potentially lead to order failures.
On the other hand, companies that have better access to products or strategic purchasing have a competitive advantage. This can currently be seen in the construction sector. In the traditional service sector (such as nursing), access to qualified personnel is significantly more important than the supplier structure. In these industries, CODEX Partners is dedicated to analysing recruitment strategy (access to universities, intern retention, social media presence, etc.), as well as employer attractiveness (such as corporate culture, training and promotion opportunities). Especially in the service segment, long-term employees with consistently solid performance and high satisfaction are essential.