Our client was considering supporting an investment project in an overseas electronics retailer which was planning to build three new large format stores. We were engaged by our client because of our insights into the electronic retail sector in the region and globally to review the strategy and markets of the company and practical aspects of the proposed investment project.
The objective of the proposed assignment was to assess the company’s business and operations in the light of the proposed project and financing. The specific objectives were to review, form an opinion on and report on:
- Critical review of the proposed business concept: appraisal of the Company’s development strategy and its viability in the context in its region
- Appraisal of the existing businesses and markets: review of current business practices and assessment of the consumer electronic goods and home appliances market and to assess the competitive position of the Company going forward and its management skills
- Review of business plan: appraisal of main assumption for growth drives, revenues and costs, cost benefit analysis of the proposed project
- Appraisal of the Project scope of work, implementation plan and project management
Lansdowne has developed a best practice due diligence approach to ensure the highest level of professionalism and bankabilityTailored engagements led by Partners who are actively involved in all phases from interviews to report development:
- Approach based on sound business acumen
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- Review of market opportunity and company’s positioning
- Review of the company’s performance, Business Plan and proposed investment
- Strategic threats & execution risks to company’s Business Plan
- Strategic Response & Improvement Levers
A number of key observations and recommendations were made:
- The company was growing strongly and the new store formats are clearly performing well. It was also accelerated by competitors who choose not to use all the levers available (e.g. credit)
- Outlook, strategic threats & potential response:
- In the short to medium term this performance is likely to continue but in the longer term the margins available will tempt other regional or global players to enter, bringing superior purchasing scale, access to credit and mature retail capabilities.
- There is also a good chance in this timeframe that credit becomes more widely available – however the resistance of some of their current competitors to this makes it unclear how long it will take to impact their performance
- This may in the longer term however present an opportunity for company to create a strategic partnership or even a partial exit
- The proposed construction projects appear to be attractive, and it is clear that the performance of the new stores is superior to the old stores.
- Internal processes and management appear robust with strong reporting and systems in place. As the business grows there is room for independent governance and external input on the board to provide a wider range of insight and independent advice.
Out recommendation to our client was that the current dominant position and advantages of company’s business were compelling and we recommend that our client pursue the proposed investment while maintaining active monitoring & support to help the business successfully respond to the strategic threats to medium-term performance.