Advisian provided expertise to execute a pre-close operational due diligence of multiple sites across two continents for a pending client acquisition by a private equity firm.
The situation
Our client was in the process of acquiring a global colour pigment manufacturer. As the timeline for the opportunity accelerated, the client engaged Advisian to perform a pre-close due diligence to evaluate operational capabilities, assess the overall condition of plants and equipment, and determine equipment repair and replacement costs.
Our approach
With an accelerated timeline, Advisian assembled a team of experts from Technical Consulting and Operational Excellence. As a cross-functional team, they performed a due diligence assessment of the operational state of the target sites, while also performing pre-close data analysis via desktop study.
The first step was visiting the assets themselves. With the transaction in pre-close, the team performed a ‘hands in pocket’ review of the sites under normal operating conditions, following the established manufacturing process from start to finish (delivery of raw materials to shipping of finished goods). The critical list of equipment was drafted and evaluated for visual wear and tear, as well as any likely failures. The Technical Consulting team members delivered a register of operating risks as well as potential projects, while the Operational Excellence team members reviewed day-to-day operations, delivering a leadership-level Elements Review that graded execution performance and process management across all functions, at every site.
The team also interviewed target company plant leadership at each site to obtain an overview of the current state of the operation, including strengths, challenges, policies and practices as they relate to operations, maintenance and reliability, EHS, Lab/QA/QC, Engineering, Supply Chain, Sales and Operations Planning, staffing and the collective bargaining agreements covering plant personnel. Additionally, the team analysed operational data available in the Data Room such as safety, production, plant capacities, in-process capacities, quality/right-first-time, yield, maintenance spend, inventory turns, sales and expected ROI of proposed capital projects.
Results
The due diligence was executed in partnership across the Advisian groups, and by working with our client and the target acquisition personnel. Establishing trust beyond level of expertise was key. The client had to be satisfied with our efforts and the identified issues with the assets under review. Similarly, it was also important that the target asset personnel felt confident that our professionalism was beyond reproach and that they had a say in the effort by providing information, complying with data requests, and participating in the effort.
Final results showed there was value in the acquisition and the opportunities for improvement beyond technical improvements and process management. The opportunities pre-close are evaluated at two to four percent of operating costs, excluding material losses. The due diligence also revealed a need for investment, with two critical pieces of equipment at the end of their useful life. The client was able to walk into the close with key operations findings and proceeded to closing negotiations.
