Carrying out a due diligence for Private Equity - confidential
The overall objective of a digital due diligence is to provide a perspective on the value of a potential acquisition, its risks, and its opportunities. Typically, three types of clients request digital due diligences: a seller, a strategic buyer, or an independent investor. This case focuses on a typical â€˜buying sideâ€™ digital due diligence.
Clearly, SparkOptimus has done this many times before. It was impressive to see howÂ quickly and thoroughly they analyzed our potential acquisition target. Their clear report helped us to really understand the digital market dynamics and key value drivers, bringing additional depth our investment discussions.
A typical digital due diligence takes two to three weeks in which we develop a view based on three main dimensions: (1) proposition, (2) technology, and (3) organization.
In our experience, all three dimensions together are needed to evaluate long-term success (for which we have developed a unique assessment model), but as each digital due diligence situation is unique, the three dimensions are adapted & deep-dives made relevant per specific case. The resulting evaluation will be based on a combination of available data and our own digital & strategic expertise & experience.
Market size: Quantifying the market size & growth helps to understand how attractive the targetâ€™s market is and to assess untapped potential. We typically estimate the market size & growth rates based on market data, outside-in analyses, expert interviews, and SparkOptimus expertise.
Customer proposition: We identify what the customersâ€™ needs & expectations are and how well the company serves them. To analyze the targetâ€™s proposition, we break it down into its core elements and evaluate its performance per element and whether it matches the expectation, e.g., by comparing the targetâ€™s performance with competitors, customer expectations from other industries that are digitally â€˜aheadâ€™, or (public) customer surveys.
Value chain & competition: We determine to what extent the target is threatened by existing & new competitors (inside & outside the industry), customer alternatives, and other developments in the value chain. Our approach starts by mapping the value chain of the industry and identifying the most important players, after which we identify potential strategic moves & other developments that can influence the targetâ€™s growth potential.
Growth opportunities & plan: We assess the feasibility of the growth plan and provide insight into the targetâ€™s ability to execute and/ or need to increase performance with the right investments & focus. In analyzing the plan, we combine a top-down view from interviews, strategic knowhow, and market analyses with a bottom-up assessment of the (sensitivity of) the key value drivers of the plan.
Customer functionality: We assess the alignment between the customer promise and the actual customer functionalities, testing & scoring the performance of the functionality that is offered.
Technology development: The development process & capabilities influence the ability to adapt in a changing environment with increasing customer expectations. We assess this against SparkOptimus principles such as the business priorities determine the development priorities, how the development budget is allocated, and if the setup, way of working, and tooling allow for a continuous data-driven development cycle.
Technology & data landscape: The technology & data landscape needs to be future-proof and flexible. We assess if the architecture adheres to our set of â€˜best practiceâ€™ principles (e.g., explicit core vs supporting systems, modularity, scalable integration) and if data processes & governance are in place to collect, enrich, and use data to continuously improve the proposition and the business operation.
Organizational setup & balance: We consider the presence & distribution of skills and whether they are safeguarded & scalable with the targetâ€™s growth ambition. The assessment ranges from the top management capabilities & roles to the BU & team setups to the full FTE distribution & hiring plans.
Digital operational excellence: When assessing the digital operational excellence of a company, we drill down on the individual elements that â€˜make the conversion machine runâ€™. We assess what the heartbeat of the company is, how capable/ experienced the employees are regarding specific digital capabilities (e.g. generating traffic at an improving ROAS, or UX skills to design, build, test, and improve), and if the different elements of the â€˜conversion machineâ€™ work in tandem.
Our clients gain a clear understanding on the targetâ€™s value and its risks & opportunities and receive a detailed report with our findings, including a concise executive summary with key insights & conclusions. We are typically involved in building post-acquisition â€˜100 dayâ€™ plans.