Commercial Due Diligence Services for Private Equity Investments
Private equity acquisition is a complex undertaking with countless moving parts. Your company’s funds, time, and reputation are all on the line, and as new products emerge and marketing capabilities expand thanks to advancing digital intelligence, it’s more important than ever that you know the commitment you’re making.
Commercial due diligence offers invaluable clarity into your acquisition, from helping you determine whether or not it’s worth the investment to understanding how to maximize its opportunities for long-term growth. Today, more and more private equity firms are choosing to outsource these services — and they’re quickly seeing all the benefits that it provides.
What is Commercial Due Diligence?
A commercial due diligence is a critical deep dive into a businesses’ current position and future potential. Typically led by an executive marketing consultant (or a Fractional Chief Marketing Officer), this internal review involves assessing everything from a company’s ability to attract and retain customers, its market positioning and digital presence versus its competitors, how it defines its brand positioning and value proposition, and a number of other key elements that allow a business to identify opportunities to accelerate growth and value creation.
Here’s what you can expect from an effective commercial due diligence:
- A deeper understanding of your acquisition’s market dynamics, competition, and customers/consumers
- A robust roadmap for growth and a holistic marketing plan
- Practical strategy execution with detailed analysis of the results and expected ROI
Outsourced commercial due diligence services typically involve a fractional CMO supported by digital specialists brought in through an agreement customized to the needs of the company. Their scope is specifically process-driven to help frame your portfolio company’s scale up, while ensuring you have the proper guardrails and strategic oversight to meet your long-term growth needs.
Why Do Commercial Due Diligence?
In the case of private equity firms, a commercial due diligence can offer invaluable clarity into the long-term potential of their investment through the support of highly experienced subject matter experts with practical advice and support to execute, ensuring the most meaningful results and greatest ROI.
This process will focus on fully understanding the target acquisition’s opportunities to determine whether there is potential for significant growth to create shareholder value. In many cases, commercial due diligence consultancy is usually employed after the private equity firm has conducted enough initial due diligence that it is willing to invest the time and resources to gain more transparency and confidence into whether it is a good investment opportunity in the long-run. And it can either be done pre or post-acquisition.
How Much Does Commercial Due Diligence Cost?
In order to best understand the costs associated with a commercial due diligence, it’s important to know your options — and what you’re getting. For example, &Marketing offers a flexible engagement through a retainer or “on-demand” model with various activities scoped on an ad-hoc basis. These retainers are typically for an initial project that is defined based on the specific target company’s needs (strategy, research, digital ads, SEO, email marketing, social media, etc). They can also be done as a “percentage of full time” on a weekly basis and paid monthly with a typical 3-6-month minimum engagement.
Here is a breakdown of a commercial due diligence framework/checklist and the associated costs
Market Position Analysis
- Determine the company’s target markets or audiences based on its sales, margin, and customer retention history
- Review and map the company’s positioning verses its competition for selected dynamics, such as value, uniqueness, market share & growth potential
- Determine whether the product and service positioning is “True, Distinct & Compelling”
- Map out the company’s Core Competences to determine whether it has sustainable competitive advantage
- Costs range from $10,000 to $20,000.
Customer Insights Collection
- Interview the company’s current and previous customers to guage how compelling and unique its products and services are from the perspective of their target audiences
- Interviews with customers to reveal what’s effective & what’s not:
a. Why they purchased
b. The products/services’ strengths & weaknesses
c. Level of customer satisfaction & the likelihood they’ll continue to purchase or use products/services
d. The reason past customers chose to leave
Determine retention rates among customers over the last 12 to 18 months. (Note: many start-ups may have lower retention rates as they home in on higher potential target groups. For quick turnover consumer products, the metric here is repeat rate, which should be at least 50%)
- Typically, 25-40 qualitative phone interviews are performed for a cost of approximately $15,000 to $20,000, or online surveys can be utilized with costs ranging from $5,000 to $10,000
Digital Marketing Strategy Positioning
- Evaluate the company’s website for content, positioning and messaging, ease of use and technical functionality, and suitability for future value creation
- Initiate discussions with key sales and marketing leaders to understand the existing lead generation pipeline and processes for managing leads generated to identify opportunities for future revenue growth
- Conduct in-depth analysis to determine the company’s and its competitor’s digital strategy, approach, and effectiveness, quantifying its digital presence and identify high ROI approaches to accelerate revenue growth
- Costs range from $10,000 to $50,000, depending on complexity
Marketing Capabilities Review
- Evaluate the company’s marketing materials, both printed and digital
- Conduct interviews with marketing teams regarding strategy and success to date
- Work with the management team to outline the strengths and weaknesses found
- Recommend cost effective improvements and internal organizational changes
- Costs ranges from $5,000 to $10,000.
Is Commercial Due Diligence Stressful?
Performing a commercial due diligence can be time consuming and resource intensive if you try to tackle it internally without the right resources, bandwidth, or expertise to do it properly. This is why more and more private equity firms are relying on outsourced fractional CMOs and marketing teams to handle the commercial due diligence of their portfolio companies on their behalf.
While some commercial due diligence experts will leave the execution of your marketing strategy to your portfolio company or a third party, there are full service digital agencies that provide the executive leadership and marketing team to see the entire process through from pre-acquisition advisory to practical execution. This approach not only leaves you with a single point of responsibility throughout the process, but also decreases the risks of issues and unapproved changes to ensure the overall effectiveness of the investment.
To learn more about the benefits of outsourcing your portfolio company’s commercial due diligence consulting to ensure you’re harnessing the best solutions for long-term success, contact the digital marketing experts at &Marketing today.
About the Author
As the Founder & CEO of &Marketing (www.and-marketing.com), Raj and his team strive to provide growing businesses unparalleled marketing strategy and execution services. Raj has more than two decades of experience in B2B and B2C marketing, sales, & strategy. He has led nearly 100 high-profile marketing strategy projects for Global 100, mid-sized clients, and SMBs, plus over a decade with General Electric and General Mills. He is a sought-after advisor and facilitator, with experience across five continents. He is known for bringing the best of ‘big company’ marketing and strategy to smaller companies without the baggage, his bias for practical implementation, and his unrelenting customer focus.
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