Clients

Due Diligence pre-M&A

The client (PE firm) is preparing for a significant investment into a startup that already has a proven market success (Series A funding). However the potential acquirer misses some deep understanding about the startup's technological fundamentals. The potential risk inherent in acquisitions is such that the board requested the management team to work with independent auditors to assure that the due diligence process is successfully implemented. The PE firm board worries about the sustainability of the startup's technology. A positive market acceptation isn't necessarily correlated with well organized foundations.

Industry
Finance
Client type
Private Equity Firm (PE)

Problem description

While the PE firm has unmatched competencies to assess the non-tech due diligence (Finance, Legal, Insurance, Tax, Compliance, QofE), they rely on experts to carry the extra-financial and intangible part of it.

Financial statements give an idea of the company's business performance, its past and its near future. The intangible reveals solidity and the chances of resilience in the face of unforeseen events.
Peter Jordan
Peter Jordan

Solution delivered

Our auditor's are in scrutiny to surface fundamental insights, look out for the risks and exposures having an impact of the valuation, therefore limits the exposition to inherent persuasive bias, or incentives.

Extract from our internal framework, in 10 points:

  • Alignment with acquirer's long term strategy, Governance review.
  • Analysis of the startup's information, technology review,
  • Business model assessment, market statistics,
  • Competition assessment,
  • Regulatory environment,
  • Intellectual Property due diligence, including freedom of use,
  • Description of the supply-chain and partnership environment.
  • IT organization, hardware, CRM, ERP, accounting and licenses management,
  • Internal process, HR and business continuity assessment,
  • Cyber-security evaluation,

If relevant, the report could also provide suggestions for business improvement.

Results

The audited startup has developed unique know-how in the clean-tech sector. It makes usage of embedded artificial intelligence to automatize the garbage sorting. With a continuous reinforcement of the machine learning, the system permanently grows it's knowledge base, resulting in faster and more precise throughput.

The system is skaleable, answers the real problem of garbage congestion, improves the recyclability of left-over materials.

While the report remains confidential, many of the above items led to satisfactory results. Very little required specific attention.. A set of recommendations is attached to the audit.

Ultimately, the acquisition happened. The PE agreed for a 5M€ investment for 20% of the shares and a voting right on the board of governance.