A potential business transaction can seem like a great opportunity when viewed from the outside; however, there are many hidden dangers that do not surface until you begin your due diligence. For example, a prospective seller may have reported record-breaking revenue figures for the year, yet they could be experiencing increased operational expenses, higher levels of competition, and/or declining market share. Therefore, buyers should obtain verifiable data prior to making an investment decision.
Industry research services assist buyers with assessing the risks associated with acquiring a business through an analysis of available public data, testing of assumptions made about the industry/market, and identifying issues that may arise during the course of the negotiation process.
1. Start With the Right Questions
The beginning of effective research is always based upon having a clear plan. When conducting research analysts will begin by identifying the primary questions that may impact the deal.
These factors include market size/growth rate, competition (active), customer base/needs, and potential obstacles to market entry. By focusing on relevant data, you will save time and keep your research aligned with the buyer’s objectives.
2. Gather Reliable Market Information
Desktop research relies upon pre-existing data available in various forms, i.e., company web-site(s), annual report(s), governmental data-base(s), industry publication(s), and/or credible news outlet(s).
Researchers compare all available sources to see if there is any evidence that will support the claim of the company being studied.
For instance, when a company states that there is an increase in sales for its product(s), the market studies and competitive reports will assist the company to know if that growth is a result of a general trend in the marketplace, or if it is a result of a particular benefit that the company has over others.
In addition, reliable research will take into account when the study was published, as well as any limitations of the study’s data, so that it does not use information that is too old.
3. Examine the Company’s Position
Market Data provides a perspective of the larger environment, however, Buyers must have an understanding of the specific target company.
Corporate research services may provide a way to examine ownership records, executive history, company operations, and public reporting data.
In order to evaluate how a company is positioned in the marketplace, what pricing strategies it employs and what areas of weakness/strength exist within the business, an analyst will often review a firm’s competitors. A company’s competitive position can help determine if it has a clear competitive advantage over its competitors or if the firm is experiencing pressure from more powerful competitors.
4. Identify Risks Before They Become Costly
Desktop research can provide warning signs which require additional investigation. Such as a decline in demand, new regulations, high concentration of customers, or high dependence on one supplier.
Research teams may create a risk register, a competitor analysis, and a list of unresolved questions. Buyers will then have the ability to focus their due diligence on the issues that are most relevant to the transaction.
Public information does not provide all of the private details of each individual company, which includes financial, legal, and operational reviews.
5. Turn Findings Into Action
The worth of a study is based on whether it helps make decisions. An understandable study report will show you what the data has shown, which assumptions seem to be true, and where there is still some doubt.
Experienced industry research services will allow a buyer to evaluate the business opportunities associated with an acquisition and identify areas that require additional investigation. On the other hand, corporate research services can assist in providing company-specific information to aid in both negotiations and due diligence.
A well-defined project will typically generate preliminary results in a short period of time (usually less than 4-6 weeks) based upon the level of difficulty of the transaction, and what data is provided.
Make Better Decisions with Evidence
Buying decisions are made quickly when they are based on research, not on “guesswork.” Desktop research allows buyers to gather information about the market, verify claims, and identify potential problems prior to spending money.
Businesses can gain more confidence when moving forward and make more informed decisions regarding possible deals by using reliable sources and providing an easy to understand analysis.