Successful Due Diligence
How BCG Supports Strategic Due DiligenceThis brochure—one of a series of eight describing BCG’s capabilities indeal transaction and integration—underscores the importance of strategic
due diligence to every acquisition.
Strategic due diligence is the process of probing, pinpointing, and prioritizing
the key issues that affect a potential acquisition target. It connects to otheracquisition phases such as target search, explains the risks of not properly
carrying out due diligence, and uses compelling case studies to demonstrate
the benefits of following a rigorous, proven, fact-based methodology toensure that the deal creates lasting value for the acquirer’s shareholders.
While acknowledging that every due diligence initiative is unique to thetarget, the prospective acquirer, and the prevailing economic environment,
the brochure details three phases that lead to a realistic, neutral assessmentof the target and the deal, enabling a sound decision on whether or not tomake an offer.

Introduction
Just as a property buyer must assess the integrity of the roof
and the propensity for leaks in the basement, so must an
acquirer probe into every aspect of the company it is interested
in buying. This brochure describes the importance of strategic
due diligence to every deal.
Some years ago, a large department store
operator was forced to sell at a steep discountthe retailer it had paid for handsomely less than
three years earlier. The acquirer had believedthat it could leverage the target’s access tomillions of customers, its prowess in databasemanagement and direct marketing, and its
strong internet position. However, it had failed toproperly understand its target’s business model.
In particular, the buyer’s subpar due diligence did
not uncover the differences between its market
and the target’s market; nor did it reveal the risksof poor sales performance or the low likelihoodof the synergies that never materialized.
That true story underscores the importance ofdue diligence to every deal. Once an attractive
target is in view, it’s time to begin the strategic
process of probing, pinpointing, and prioritizing
the key issues affecting that target.
There are several strands of due diligence thatweave together: the financial due diligence
carried out by investment banks and accountants,
the legal due diligence managed by law firms,
the technology or environmental aspects
assessed by experts in those fields, and—mostimportantly—the strategic due diligence thatdigs deeply into the key business questions.
Doing strategic due diligence well is just as
important. Poor deal preparation is a leading
reason why as many as 55% of all M&A deals
actually destroy shareholder value. Research
by Boston Consulting Group reveals that deals
often fail because the target company turned
out to be the wrong candidate, or its strategic fit
was not clear, or the price paid was too much.
All of those failure points can be mitigated—and
ideally avoided—with an effective due diligenceprocess.

Essentially, strategic due diligence is a rigorous,
iterative process of raising and then addressing
critical questions. How attractive is the target’s
market? How does its performance compare tothat of its leading competitors? Is the target too
reliant on one major customer? How financiallysecure are its key suppliers? What is the caliber
of its top management team? What hard-to-see
vulnerabilities might diminish its value?
Answers to such questions are what enable a
prospective buyer to assess the target’s longterm value. Due diligence also examines thesynergies of the potential deal, digs deeply
into the target’s business plan, and reviews thedeal’s feasibility—the investment required, therealities of retaining the acquired company’s
talent, and so on.
No two strategic due diligence projects are thesame, of course. Each is unique to the target, theprospective acquirer, and the prevailing market
and economic environment. BCG’s approach todue diligence reflects those realities. Rather thanrun through a standard checklist of items—which
can lead to deal-breaking gaps in analysis—ourexperts draw on deep experience to focus on
the target’s key issues. We apply a well-defined
methodology and standardize our processes anddocumentation to give a predictable look andfeel to our results. Our close analysis enables us
to thoroughly assess the business case for theacquisition—and challenge it, as needed.
The result is a professional, realistic, and neutral
assessment of the target and the deal, allowing
for a rational, well-considered decision onwhether or not to make an offer.

BCG Has Sharpened theStrategic Due Diligence
Process for Many Clients.
Imagine What We Could
Do for You
Almost all potential acquirers conduct due
diligence on targets, typically bringing in outside
expertise to help with the strategic process aswell as the financial, legal, and more specialized
aspects.
However, that is no guarantee that strategic due
diligence will be carried out properly. In the rush
to get a deal done, an acquirer may succumb to
the temptation to take shortcuts or default to ad
hoc approaches. Simply using a cookie-cutter
approach adds little or no value and may actually
increase the risks of the deal failing.
Because every deal is unique in almost every
respect, BCG never resorts to such standard
approaches. Acknowledging each client’s
circumstances, we blend our fact-based
analytical, strategic, and industry perspectives
with a willingness to challenge conventional
wisdom, supported by deep knowledge of theclient and its markets.
Our rigorous client-centered approach owes
much to our decades-long experience withacquisitions: In the last two years alone, wehave worked on more than 1,200 buy-side M&A
projects worldwide—and every year, we conduct
hundreds of strategic due diligence projects.
We also bring an unmatched holistic perspective
to our work. BCG stands apart because of our endto-end offerings, ranging from corporate strategy
and M&A strategy to target search, strategic due
diligence, and post-merger integration.

Throughout the strategic due diligence stage, weinteract closely with the client just as we do inevery aspect of our involvement with M&A. We
work at pace, always striving to keep our clientsahead of the competition in the deal process.
And, we continually emphasize accuracy andcompleteness, applying a range of tools andtechniques to accelerate and reinforce theeffectiveness of the process.
Indeed, advanced analytics are at the core ofour due diligence approach. We use powerful
digital tools in every due diligence engagement
to gain truly novel insights. For example, weapply analytics software such as Tableau andAlteryx to turn data into truly novel insights.
To size markets, we leverage our proprietary
geoanalytics tools, combining client and publicdata to create dynamic graphic maps thatcan unlock new perspectives and spark fresh
discussion. To pinpoint and more fully reveal
customer sentiment and innovation trends, we
use Quid, an artificial intelligence platform thatextracts contextual meaning from any form of
written content.
That is just a small cross-section of the tools at
our disposal. Beyond that, we also collaborateclosely with BCG GAMMA, our advanced
analytics and data science consulting unit, tocome up with customized solutions for cracking
the most complex analytical problems.

02 									SUCCESSFUL DUE DILIGENCE

BCG divides the strategic due diligence process into three practical phases

1

2

3

Full-scope due diligence

Bid andnegotiation
supportNon-binding bid

Pre-qualification

Info provided by target company/I-Bank
TeaserInfo-memo

Pre-due diligence1

Data room

Q&A

Strategic/commercial due diligence

Final bid

Documentation of“equity case”+

BCG expertise
BCG know-how
and internalinterviews

Initial analysis

Research

External
interviews

Presentation of“banking case”

Financial due diligence (provided by accountant)
Legal due diligence (provided by lawyer)
Other due diligence (e.g., environmental, IT)

Source: BCG

Let’s review each phase in detail.

BOSTON CONSULTING GROUP

03

PHASE

1
Pre-qualification

In terms of analytical depth, this phase sits
between the screening done in the target searchand the full-scope due diligence described inPhase 2. It typically takes between two and fourweeks to complete.

The Phase 1 activities can be thought of as due
diligence in miniature. The intent is to identify
deal-breakers or red flags as early as possible,
and to do so before fully committing to a deal
and spending the significant time and resources
required. At this point, access to information on
the target company is still quite limited; there
may be just a teaser (a 10–20 page memo usually
prepared by the investment bank that describes
the business and its key financials) or, at most,an early discussion with the target company’s
management team.

04 									SUCCESSFUL DUE DILIGENCEPre-qualification due diligence can determine “back-of-the-envelope” target attractiveness

Teaser• Typically 10–20
page memo• Describing
business• Key financials• Non-confidential

Pre-qualification

Non-binding bid• Fit with investor
strategy

Range of potentialbid (indicative)• Market attractiveness

Post-acquisition strategy:
Value creation possibility
Breakup?
Merger with portfolio
company• Competitive position• Value creation
potential• Exit options

Short-listing ofbidders in process

Done by target company
with external advisors
Based on:• Price offered• Strategy• Reputation of bidder
Typical admissionof 3–8 bidders

Is the target
attractive forthe buyer?

BOSTON CONSULTING GROUP

Buyer usually also
has to provide
information on future
strategy (in addition
to indicative bid)05

Assuming those inputs are available, prequalification combines that information withexternal data from databases and expert
interviews, or with the data uncovered using
advanced digital tools. If, for example, the target
is not officially for sale or the sales process
has not yet started, this phase has to happen
outside-in." BCG excels here: Drawing on ourown comprehensive benchmark databases, ourglobal network of industry and functional experts,
and our proprietary digital tools, we blend thosefactors with our creative and proactive accessto third-party knowledge bases, and regularly
uncover insights that are easily missed by others.

Whatever the mix of inputs, the resulting insights
help to determine just how attractive the target
is, based on its fit with the prospective acquirer’s
corporate strategy, the opportunities and upsidein the target’s market, how it stacks up next to its
competitors, and what potential it has to create
lasting value. Additionally, pre-qualification canunearth the exit options available to an acquirer,a factor that is particularly important to financial
investors such as private equity firms. The
outputs of this phase help our clients prepare
their bid and get them short-listed for the next
phase of due diligence—or, just as importantly,
help them decide not to pursue the deal.

In one recent scenario, a company was interested
in acquiring part of a US business—a subsidiarythat was nominally not for sale. BCG was engaged
to conduct pre-qualification due diligence to get
discussions started and do an initial assessmentof the prospective deal. Combining the resources
noted above with only half a dozen basic financial
data points gleaned from the US parent of thetarget, we quickly built a profit-and-loss estimate
and provisional business plan, including
measures to drive growth, reduce costs, andestimate initial synergies. This allowed thecompany to substantiate its initial valuation andbe seen as a credible bidder as it engaged withthe seller to advance the deal.

BCG ADDS VALUE IN THESE WAYS:
Clear focus: Based on our deep industry expertise and comprehensive deal experience, we know exactly where
to probe a target to differentiate what is the tip of the iceberg and what risks—and opportunities—lie below thewater line.
Full toolkit: We bring the range of capabilities required for a rapid and focused assessment, from strategic due
diligence best practices and deep benchmarking data to the most advanced digital tools and hands-on insightsfrom senior industry experts within our global network.
Rapid mobilization: Once a deal goes live, time is of the essence. Our teams consistently stay ahead of the deal
pace, ramping up at short notice and working to ensure that our clients remain in front of potential competitors
in the deal process.

06 									SUCCESSFUL DUE DILIGENCE

Real Deals, Real Results:
BCG Provided End-to-End
Support for AbbVie’s Acquisition
and Integration of AllerganWith its blockbuster drug Humira losing patent
protection in a few years, pharmaceutical giant
AbbVie needed to diversify its drug portfolio.
Besides conventional treatments, it was looking
for products in high-growth, innovation-driven,
price-stable categories.
After a broad search of opportunities, it focusedon Allergan, another multi-line pharmaceuticalcompany with a specialty in medical aesthetics.
The Allergan board accepted the offer at a priceof $63 billion, with the deal announced on June25, 2019.
To succeed, the deal needed to give AbbVie
substantial cost savings, estimated at $2 billion
by year three, and then sustained revenue
growth after Humira lost exclusivity in the
US in 2023. AbbVie’s profits in the short term
would pay off most of the debt from the deal.
Besides rejuvenating its portfolio, AbbVie also
expected to boost sales of Allergan productswith its commercial expertise and international
infrastructure.
To achieve those ambitious goals, BCG helped
AbbVie to carry out extensive pre-close
integration planning. It actively supported theintegration management office, supported
the integration teams, and tracked progress
toward the company's integration goals.

BOSTON CONSULTING GROUPThe priority was to pursue critical sourcesof value, especially Allergan’s strengths inaesthetics. To help retain talented employees
from both organizations, the integration teams
decided on many future positions before theclose, including an Allergan executive on the
AbbVie senior team.
AbbVie didn’t simply fold Allergan into its existing
structure. The latter’s aesthetics businessbecame the centerpiece of a new global business
unit. That led to decisions on which support
functions to place in the unit, and which would
come from AbbVie headquarters.
On the cost side, the integration teams went
deep into the details to achieve savings throughconsolidation of infrastructure and rationalizingof investments, particularly in the R&D pipeline.
BCG also helped the teams with change
management, coordinating wide-ranging plans
to help teams across the enterprise adapt to newprocesses and ways of working.
The coronavirus pandemic hit before the closeon May 8, 2020, less than a year after the deal’s
announcement. But with intensified communicationand collaboration, the integration work stayed on
track, with a happily uneventful close, smooth postclose operations, and continued strong businessperformance.

07

PHASE

2
Full-scope due
diligenceIn this phase, sleeves are rolled up to dig deeply into the target’s business plan, its market, its historicalperformance, and its potential synergies with the possible buyer. Notably, this is not just a detailed
market study or an operational assessment; it yields a granular, contextual view of the target. Phase
2 also takes a hard look at the feasibility of the deal. This phase typically takes another four weeks,although some cases can stretch beyond that.
The work of strategic due diligence falls into discrete modules, all of which are interconnected.

Full-scope due diligence modules
Multiple interactions among all modules

1Competitive position

2

Target historical performance

3

Synergy assessment

5

Feasibility

6

4

Business plan assessment

Market

The first three work modules—market, competition, and historical performance—are prerequisites
for the fourth: assessment of the business plan. They are regularly supplemented by the last two
modules covering synergy potential and deal feasibility. Each merits a closer look.

08 									SUCCESSFUL DUE DILIGENCEMARKETThis module examines the market in which
the target operates (in terms of applications,geographical regions, customer groups, etc.),
and how that market is expected to develop. The
module is the foundation for the whole strategic
due diligence exercise, providing an estimateof underlying growth potential for the target
and answering two fundamental questions: Is
the target positioned in an attractive market
environment? Are there any deal-breaker threatsbeyond the horizon—for example, technology
changes that could undercut the current market?
This module is crucial not only for private equity
firms that can benefit from BCG’s industry
expertise and analytical capabilities to correctly
define the relevant market and assess its
expected growth, but also for corporate buyersthat are entering new geographies, new market
segments, or even entire markets. Even insituations where executive management has
deep market expertise, it often helps to haveexternal validation to add credibility with internal
stakeholders such as the board of directors or
third parties such as financing partners.
Market analysis typically involves drawing on a
range of primary and secondary sources, frominterviews with internal and external experts
to market studies and company and industry
databases. Such inputs are especially valuable
when exploring niche markets; for complex
sectors such as software development, expert
input is almost always necessary to developing
a full understanding of the industry. Evenin seemingly well-defined markets such as

BOSTON CONSULTING GROUP

consumer electronics, triangulation of thevarious sources may yield new insights or atleast ensure that alternative views are taken into
account.
A detailed market model should be at the coreof this module, providing granular forecasts
of market size and growth trends—in terms ofboth volumes and prices—and, importantly,
incorporating the drivers of each trend. The
model is fed with interview results, third-party
data, proprietary knowledge, and other sources
to provide a robust yet flexible prognosis for thetarget’s market outlook and for the market’s
related downside risks—or upside potential.
At a more macro level, it is supplemented by adetailed analysis of trends over time, including
market cyclicality, technological shifts, regulatorychanges, and other potential disruptions.
The robustness of the market assessment relies
heavily on the quality and breadth of sources
available. Here, BCG stands apart thanks to its
array of industry and other databases, its vast
network of expertise, and its unique access toa wide range of third-party market-assessment
tools and techniques.
Further to that point, this module benefits greatly
from BCG’s use of advanced digital tools. In one
case, we put our proprietary geoanalytics tools
to work to comprehensively assess the full-store
roll-out potential of a design product retailer. In
another market module exercise, we used theBrandwatch social listening platform to quickly
pinpoint a target’s customer pain points.

09

COMPETITIVE POSITIONING
The second prerequisite module looks at how thetarget is positioned relative to its competitors
as seen by customers and other market
participants, and what this implies for its future
performance relative to development of theunderlying market. It helps to answer questions
such as: How does the target differentiate itself?
How intense is the competition? How sustainable
is the target’s competitive advantage?

Beyond the focus on a company’s perceived
positioning, it is also paramount to get athorough understanding of the broader
competitor landscape, market structure, andcompetitive dynamics. While these are mostly
outside the target’s control, they can have asignificant impact on industry-wide profitability
levels and market-share trends—for example, inthe form of new market entrants threatening anincumbent’s position.

As with market analysis, the views and opinions
of experts are central to getting a detailed
picture of the target’s perceived performanceand that of its competitors. This qualitative—
and subjective—information needs to be fleshedout using secondary sources and benchmarking,and, especially in markets with a fragmented
customer base, should be supplemented bybroader surveys and digital analytics to ensure acomprehensive perspective.

Again, BCG’s use of digital tools—including ourown proprietary software—is crucial to obtaina comprehensive view beyond the conventional
due diligence toolkit. In one instance, we used
Quid, advanced analytical software that extracts
meaning from any kind of written content, toidentify investment clusters in order to predicta target’s expected competitive density andlikelihood of market entries. In another example,
we leveraged Similarweb to rapidly analyze atarget’s number of unique visitors per monthcompared to those of its competitors and bestin-class brands to create a proxy for the target’s
online presence and its digital capabilities. And,by drawing on databases such as Crunchbase and
Google Patents, we created an in-depth view of atarget’s technological positioning compared tothat of its competitors and to broader innovation
activity and trends.

Pulling together insights from such a disparate
range of sources can yield novel and surprisinginsights: A target’s proclaimed and universallyacknowledged technology leadership may notmatter much to customers more focused ongetting a “good enough” product at the bestprice; or a company’s longstanding excellent
reputation may have been wrecked by recent
efforts to cut costs by reducing customer service.

10 									SUCCESSFUL DUE DILIGENCETARGET’S HISTORICAL PERFORMANCEThe third prerequisite module studies thetarget’s performance over time. This involves
scrutinizing both its commercial performanceand its operational track record.
Commercial performance focuses on topline and gross margin developments and theirdrivers—essentially how well the company isperforming in the marketplace. Typical analyses
can include looking at price dynamics, customer
portfolio-related risks (e.g., dependencies on a
few customers) and trends, and a differentiated,
granular view of revenue development in
categories such as geographies, product groups,
and distribution channels.
Operational performance is concerned withcost development and the cash intensity of thebusiness—its ability to translate marketplace
success into sustainably high profitability andcash flow. The review of operational performancecan involve assessing the development of

BOSTON CONSULTING GROUP

various cost ratios, operational KPIs, and capitalspending, as well as technology development
and other factors.
While this module relies mostly on data
provided by the target and its financial advisors,
supplemented by discussions with its senior
executives, digital tools can also play key roles.
For example, they can quickly help tease out sales
and profitability trends in an industrial supplier’s
complex product portfolio spanning thousandsof products and variants; or, for a retail business,they can provide a visual perspective of store
performance in the context of local market
development and competition.
Analyzing the target’s historical performanceis a prerequisite for any serious business planassessment. It also ties back to the market andcompetitive positioning modules whose outputs
help put the company’s historical performancein context.

11

BUSINESSS PLAN ASSESSMENT
This module is the culmination of the due
diligence effort. By drawing on the insights fromthe preceding modules, it provides a balanced
and objective assessment of the target’s growthprospects and potential for value creation.
Specifically, the business plan module gauges
the feasibility of the target’s business plan andreveals its key risks and any additional upsides,
forming a view of how the business is likely toperform over the forecast period. This includes
analysis of the underlying drivers in the plan,
including revenue and margin development
across regions and business segments.
Those data points are then benchmarked against
historical performance, underlying market
development, and the company’s competitive
positioning, and are supplemented by assessing
the strategic initiatives and measures that
underpin development of the plan. The goal is toweigh the evidence for projected development in
the “base case” and, if necessary, come up withan alternative view or even a range of different
scenarios.

One practical example could be a target
company operating in a growth market that has
lost ground against competitors in recent years
due to its operational problems; the company
now plans a significant turnaround, implying that
it will achieve big gains in market share. Without
substantial evidence for this implication—in
the form of proven sales initiatives or positive
customer feedback, for example—the company’s
credibility would have to be questioned and apotential discount applied in the acquirer’s own
model for the target.
However, the focus is not purely on risks andtheir likelihood. A key element of this moduleis also the identification and quantification offurther growth opportunities and upsides aboveand beyond the plan.
The conclusions and quantitative results fromthe business plan assessment feed directly
into the acquirer’s operating model and inform
its decision-making process, valuation, andnegotiation strategy, making this module thelinchpin of the entire due diligence exercise.

12 									SUCCESSFUL DUE DILIGENCESYNERGY POTENTIAL
Beyond the target’s standalone value creation
potential assessed in the previous modules,
synergy estimation is a critical element ofstrategic due diligence.
That is especially so for strategic and industrial
buyers who want to know what kinds of synergies
they can expect on the top and bottom lines,
and what will drive those synergies. Most
synergies are recurring, such as scale economies
from combining purchasing volumes, merging
inbound logistics operations, or consolidating
sales teams. Some synergies are one-offs, suchas the opportunity to avoid now-unnecessary
investments in manufacturing or research.
In some cases, dis-synergies will occur if, forexample, there are overlaps in customers
between the acquirer and the target company;
some customers may be prompted to push for
greater discounts as they perceive potential
economies of scale.

DEAL FEASIBILITY
The final element of full-scope due diligence
involves assessing the feasibility of the deal
through five lenses: the acquirer’s internal
resources and attendant capacity issues as wellas the quality of and any significant skills gap in
the acquirer’s management team; status of andlikely moves by other bidders, and their likely
responses to the acquirer’s offer; necessary
measures to retain key people and deal with
cultural and other organizational issues;
obtaining the financing needed to do the deal;
and what will be needed to ensure an effective
integration.

The review of potential synergies involves
verifying details with management at thetarget company and gauging the deal aroundcomparable prior transactions. It may also
call for scenario-building and simulation todetermine the best estimates of synergies,
weighted by their probabilities. Further, any
synergy estimation will require preparation of
the joint effort needed from both buyer and seller
between signing and closing, as well as detailed
planning for post-merger integration to enable
the buyer to jump immediately into realizing
synergies. Such efforts typically run up against
anti-trust rules that prevent the exchange ofsensitive information before closing, especially indeal situations involving direct competitors. This
seemingly intractable problem can be overcome
by using so-called “clean teams”—neutral
outside advisors who can generate the analyses
needed for synergy estimation and prepare forpost-merger integration while ensuring that“firewalls” are maintained between the two deal
parties.
As in the other modules, BCG can bringacquirers the benefits of its advanced digital
tools. In one example, we applied proprietary
artificial intelligence software to combine the“spend cubes” of two large industrial companies
across millions of individual transactions. We
were quickly able to derive consolidated andconsistent purchasing categories for assessing
potential procurement synergies in a combined
entity.

BOSTON CONSULTING GROUP

13

BCG ADDS VALUE IN THESE WAYS:
Value creation comes first: We put value creation first and concentrate on the definition of a clear rationale thatdrives shareholder value—strategic thinking, a focus on the bottom line, and actionable insights are at the coreof what we do.
Holistic perspective: We do not treat due diligence as an isolated exercise. Rather, we consider it an integral
part of the end-to-end deal process, starting with strategy formulation and culminating in post-deal integrationand value creation.
Tailored approach: Since no two deals are alike, a cookie-cutter approach simply does not work. We customize
our approach to each client’s requirements and expectations, industry-specific considerations, the deal timeline,
and myriad other factors.
Industry and topic expertise: BCG has a broad global network of functional and industry experts at its fingertips.
We understand industries and markets in depth and know where to focus based on our extensive deal experience.
Advanced analytics: We apply the due diligence toolset with rigor. To derive truly novel and valuable insights,
we go way beyond standard practices, employing the most advanced digital tools and analytical approaches fromacross our global network.

14 									SUCCESSFUL DUE DILIGENCE

Real Deals, Real Results:
Tire Maker’s Target Search
Soon Pays Off

Not long ago, Bridgestone Europe, thesubsidiary of global tire giant Bridgestone,
wanted to be able to scan the horizon for targets
that could help it future-proof its productportfolio. Specifically, the company sought
to identify product areas that showed strong
growth promise and would help it withstand theheadwinds in its core tire business.
The company was casting the net wide. Of
particular interest: technology categories
that would help accelerate its transformation
journey from tire producer to mobility solutions
player in fleet services.
Bridgestone hired BCG to help identify M&A
targets across its then-current businessecosystem and to spot opportunities to ridenew business waves, ranging from industrial
conveyor systems to factory automation. BCG
drew on its vast experience with target search todevelop a clear mechanism for evaluating andcontinually updating lists of targets. Throughout
the initiative, BCG helped Bridgestone to build
up its M&A “muscle” and expand its deal
pipeline.
The work involved showing where Bridgestone
might have a “right to play” in sectors ranging
from autonomous driving to materials recycling.
BCG also ran in-depth market assessments(technology trends, patent registrations, etc.)
to validate M&A focus areas, and used multiple
sources (IP scanning, for example) to create atarget universe as the basis for defining longand short lists of targets.

BOSTON CONSULTING GROUPWe also developed and applied an analyticalframework to assess strategic fit and M&A
feasibility for identified targets, conducted predue diligence on the most promising targets,and structured a range of potential “M&A plays”
to support strategic discussions and benchmark
various investment options. Further, we
set up an M&A radar mechanism to enable
Bridgestone to spot changes in its competitive
landscape and provided the company with arich target repository (more than 2,500 detailed
entries) plus a framework for evaluating eachtarget’s strategic attractiveness.
The initiative paid off fast. Armed with its
repository of targets and clear evaluation
processes, Bridgestone had what it needed toquickly pinpoint and make a successful bid for
TomTom Telematics, Europe’s top provider ofdigital fleet solutions.
The $1 billion acquisition substantiallystrengthens Bridgestone’s digital capabilities,
gives it a prime position in a sector growing
at double-digit annual rates, and propels thecompany toward its goal of being a diversified
mobility solutions provider.

15

PHASE

3
Bid andnegotiation support

Now come the final preparations needed to assemble and make the final bid.
This includes summarizing the due diligence findings for different audiences(investment committees, financing partners, etc.) in order to support theimminent negotiation process and lay the groundwork for post-merger
integration.

Bid and negotiation support can be divided into three steps
End of due diligence(possibly exclusivity)

1 Phase 2: Strategic
due diligence

Findings from due diligencephase(s)• View on standalone
target attractiveness(market, competition,and business plan)Signing2

Making the bid &finalizing the deal

3Pre-closing & preparing
for integration

Bid preparation

Pre-closing support• Summary of due diligence findingsin equity case• Support in anti-trust clearance• Definition of banking case (forfinancing partners; if applicable)• Assessment of synergy
potential and deal
feasibility (if applicable)

Negotiation strategy• Challenging investment
thesis of target• Definition of tactics and deal limits• Definition of team setup and roles• Assessment of target price range• Setting up of clean teamPreparing for integration• Defining 100-day plan
• Building integration plan (ideally based onclean team setting), such as:- Integration project team and setup- New org and management structure• Deal structure and financing
options- Defining new functions structure• Initial term sheet and deal
covenants- Ensuring business continuity on Day 1

Negotiation execution• Anticipating/modeling potential
alternative bids

- Planning for systems integration- Further detailing of synergies• Identifying and surfacing culturaldifferences• Support in contract markups from acommercial/strategic perspective

16 									SUCCESSFUL DUE DILIGENCE

MAKING THE BID AND FINALIZING THE DEAL
The basis for the final bid is the “equity case”
document, intended for the bidder’s executive
management, its board of directors, or its
investment committee. The objective of the
document is to get all the internal approvals
required to place a final bid, with an emphasis
on value creation and growth potential as wellas risks. Pertinent to both strategic and financial
buyers, the document contains all information
gathered on the target company, the potentiallyadjusted business plan, and the recommendation
for the binding bid, covering price, and strategy.
It also helps answer the questions of where andhow value will be created by the acquisition.
For financial buyers, in particular, anotherdocument is often needed: the bank presentation
or “banking case.” This document is intended
for the banks or other financing partners thatprovide acquisition financing, but can also be
useful for corporate buyers, depending on thesize of the deal. The document must lay out asolid rationale for financing at attractive rates.
The emphasis here is on downside risks and a

BOSTON CONSULTING GROUP

realistic growth path—factors that will form thebasis of the covenants attached to the financing.
It helps answer the questions about the risks tothe bank of not being repaid in time or in full—or potentially losing all the money it provides forthe deal.
Before final negotiations with the seller canbegin, a comprehensive negotiation strategy
needs to be in place. This involves considering
a wide variety of factors, including the different
parties’ relative positions and bargaining power,
potential price ranges, non-financial motivations,available “bargaining chips,” initial negotiation
tactics, as well as negotiation team members andtheir roles. The findings from the due diligenceprocess play a central role in this phase as thefact base for determining negotiation strategy
and tactics. In particular, estimates of thesynergy potential can add leverage, as can BCG’sassessments of expected pricing proposals fromrival bidders.

17PRE-CLOSING AND PREPARINGFOR INTEGRATION
Assuming that an agreement is reached with theseller, it is time to move onward to the signingof the contract, the start of any likely antitrust
clearance, preparation for Day 1 integration anddrafting of the post-deal 100-day plan, along withan intensified exchange of information with thetarget company—possibly with the support of aclean team. BCG also helps to lay the groundwork
for assembling the financing for the deal.
The results of the due diligence phase are also
used to prepare for the integration process.
They provide the basis for the integration plan,setting out guidelines for the new management
structure and for resolving employment andimplementation issues on the path to Day 1.
They will answer questions about who reports towhom, how the organization charts will change,
how compensation plans will be shaped postmerger, what might be the impact of union
contracts, and what the benefits programs will
look like, for instance. And, they will help address
issues such as who must be on the integration
team; how, in what order, and at what pace

the acquirer’s and target’s systems will be
integrated; which functions will be consolidated;
and what synergies will be pursued and how
quickly.
Due diligence should also flag and highlightcultural differences—everything from differences
in management philosophies and work policies
to gaps between, say, a centralized operatingstyle at the acquirer and a decentralized style atthe new subsidiary.
Which management philosophy will prevail, andhow will that affect key management talent?
How will cultural differences be overcome?
The issues behind such questions matter
enormously to M&A success; many a deal has
foundered because of clashing cultures. Our
research shows that about 60% of corporate
leaders mention a lack of cultural fit as one of
the reasons for the failure of a deal. A thoroughdue diligence process can go a long way toward
anticipating, identifying, and surfacing such
issues.

BCG ADDS VALUE IN THESE WAYS:
Decision support: Getting across the finish line in a deal process requires the ability to determine the rightvaluation, accurately assess the competitive situation in an auction process, and appropriately reflect risks inthe share purchase agreement. Through objective and candid assessments, we help our clients strike the rightbalance between these often conflicting requirements to maximize value creation and avoid “deal fever.”Balanced view: We package and tailor our strategic due diligence findings in a way that reflects the needs of all
key stakeholders in the transaction, be it the deal team, senior management, or potential financing partners.
Thinking ahead: We help our clients prepare for closing and Day 1, and ensure a smooth transition to PMI
by drawing on the insights gained during strategic due diligence, our deals and PMI expertise, and our deep
knowledge of the industry and how our clients work.

18 									SUCCESSFUL DUE DILIGENCE

Best Practices in Strategic
Due Diligence

01

02

03

Know your capabilities andhow they can be leveraged
successfully, even in nonsynergy-driven deals.

Involve the right people—
those with the appropriate
operational knowledge andthose responsible for PMI.

Understand the otherside—the target company’s
financial structure andperformance, its people, its
culture, and its corporate
strategy.

04

05

06

Rigorously assess therobustness of future
estimations.

Look at PMI issues
throughout the deal toensure a good fit.

Make fact-based, objective
decisions—never succumbto deal fever.

07

08

09

Be willing to change course
when new information
emerges about the target orother aspects of the deal.

Maintain a big-picture
perspective and view thedeal as a means to an end.

Remember why you aredoing the deal—focus on
items with high uncertainty
and high value.

10
Don’t be afraid to say “no”.

BOSTON CONSULTING GROUP

19

Why BCG Is Your Best
Partner for Strategic
Due Diligence
STRATEGIC PERSPECTIVE

We apply fundamental insights to every due
diligence
situation,seeking
step-change
opportunities to create value. We constantly
and constructively challenge the conventional
wisdom. And, we take a highly analytical, factbased approach at all times.

TAILORED APPROACH

BCG customizes its due diligence activities tothe client’s circumstances and the particularsof the deal and adapts them over time. Knowingthat “off the shelf” approaches do not deliver thehigh-value outcomes that clients deserve, we usea hypothesis-driven process and work through ititeratively with the client.

DEEP INDUSTRY INSIGHTS
Our knowledge of industries—as well as ofbusiness functions and companies themselves—means we are never starting from scratch. BCG
excels at leveraging the expertise across its
global network, building on our experience fromother industries, and capitalizing on proven waysof testing hypotheses and quickly learning fromearly results.

SPARRING PARTNER

BCG is anything but a basic data provider. Our
senior management perspective enables a whole
new level of contribution to effective due
diligence. We are positioned as a credible,
unbiased discussion partner for top management,
working with value in mind rather than being“deal driven.”

CLOSE COLLABORATIONBCG never works at arm’s length. Everything we
do for you is done with you, continuously andcollaboratively.

LEADER IN M&A SERVICES

BCG is rated the best M&A partner by anindependent authority; we conduct more than
800 due diligence projects globally every year.

RESULTS-ORIENTED PROCESSBCG continually focuses on the issues mostcritical to effective strategic due diligence. At all
times, our emphasis is on bottom-line impact andoutcomes that the client can act on decisively.
Knowing that speed is of the essence, we work atpace and use the appropriate digital tools to help
clients gain an edge as quickly as possible.

20 									SUCCESSFUL DUE DILIGENCEToward Integration:
Ensuring the Deal Works
After the Ink Is Dry
The successful signing of an M&A deal is the
beginning, not the end, of the actual merger
activity. Now comes the hard work of integrating
two disparate organizations. These days,
investors expect cost synergies 12 to 24 months
after a deal has been signed. The longer it takes
to integrate the target after signing, the more
likely that management will get distracted,
potential synergies will go unrealized, and key
staff will begin to decamp.

BOSTON CONSULTING GROUP

So-called clean teams can help ensure thatsynergies start to be realized the moment the
ink on the deal is dry. These are groups set up by
independent third parties like BCG to collect andanalyze sensitive data before the deal closes,
and to sanitize and share certain results with thebuyer ahead of time, provided that those results
are approved by both parties’ legal advisors.
These steps enable the buyer to get past what
would otherwise be blind spots and to startacting on the integration.

21

Deals That We’ve
Helped Happen
2020
2020

2020/2019

2020

2020

Strategic advisor to thebuyer and on PMIStrategic advisor
to the buyer

Strategic advisor
to the buyer

Value not disclosed

$5.1B

$332M

2019

2019

2019

buying 22.5% shares ofbuying 5% share ofStrategic advisor to thebuyer and on PMIStrategic advisor
to the buyer

Strategic advisor
to the buyer

Value not disclosed

Value not disclosed

$200M

€910M

2019

2019

buying 49.99% of Santander
Securities Services from
Strategic advisor
in JV transaction

2020

Strategic advisor
to the buyer

Value not disclosed

2019
2019

Strategic advisor
to the buyer

Strategic advisor to thebuyer and Strategic
advisor on PMI$484M

Strategic advisor to thebuyer and Strategic
advisor on PMI$2.9B

22 									SUCCESSFUL DUE DILIGENCE

2018
2018

2018

2018

2018

buying 72% ofcombined their mobility
services in an equally
owned joint venture

Strategic advisor
to the buyer

Strategic advisor to thebuyer and Strategic
advisor on PMI$51M

Value not disclosed

2017

2017

2017

2017

Strategic advisor
to the buyer

Strategic advisor
to the buyer

Strategic advisor
to the buyer

Strategic advisor
to the buyer$1.2B

Value not disclosed

$5.2B

$160M

Strategic advisor to acquirer
in joint venture transaction

c. $40B

2018

buying US candy business ofStrategic advisor
to the buyer

$2.8B

2017

2017

Strategic advisor
to the buyer$900M

BOSTON CONSULTING GROUP

23

Meet Our Team
BCG’s experts represent a rich and diverse group whose
experience comes from solving the key issues faced bycompanies around the world. For every focus area, we also have
local experts who provide pivotal insights into the dynamics ofindividual markets.

Jeff Gell
Managing Director and Senior Partner
Jeff Gell is a Managing Director and Senior Partner based in BCG’s Chicago office. He
is a core member of BCG’s Consumer, Operations, and Corporate Finance and Strategy
practices and leads the Transaction and Integration Excellence business globally.

Dr. Jens KengelbachManaging Director and Senior Partner
Dr. Jens Kengelbach is a Managing Director and Senior Partner based in BCG’s Munich
office. He is the Global Head of M&A and the leader of the BCG Transaction Center.

BCG’s Corporate Development Practice Encompasses:

More than 150 partners and
700 trained professionals
across all seniorities, eachwith significant experiencein corporate development
and corporate finance.

Teams that always combine
the specialist’s expertisewith our proven industry
expertise, bringing strategic
know-how to all industries
and geographies.

A “solution first” mindset tohelp constructively manage
the dealmaking process atthe strategic “macro” level
as well as at the levels ofdetail required.

24 									SUCCESSFUL DUE DILIGENCE

Jesper Nielsen
Managing Director and Senior Partner
Jesper Nielsen is a Managing Director and Senior Partner based in BCG’s London office.
He is currently the Regional Leader of our Transaction and Integration Excellence business in Western Europe and South Africa.

Decker Walker
Managing Director and Partner
Decker Walker is a Managing Director and Partner based in BCG’s Chicago office. He isa core member of the Industrial Goods and Corporate Finance & Strategy practices withparticular focus on Agribusiness and M&A topics. He is also a core group member of the
BCG Transaction Center.

Tobias Söllner
Associate Director
Tobias Söllner is an Associate Director based in BCG’s Munich office. He is part of the
Corporate Finance Task Force within Corporate Finance & Strategy in the BCG Transaction Center.

Chris Barrett
Managing Director and Partner
Chris Barrett is a Managing Director and Partner based in BCG’s Dallas office. He joined
BCG in 2001, and has worked on Post-Merger Integrations across many industries, geographies, and topics. Chris has also worked in our Los Angeles and Amsterdam offices.

Daniel Friedman
Managing Director and Senior Partner
Daniel Friedman is a Managing Director and Senior Partner based in BCG’s Los Angeles
office. He is the Los Angeles Office Leader and the Leader of the Transaction and Integration Excellence Business in North America.

Teemu Ruska
Managing Director and Senior Partner
Teemu Ruska is a Managing Director and Senior Partner based in BCG's Helsinki office.
He also leads the Client Team in the Central and Northern Europe and Middle East region and specializes in due diligence and PMI.

BOSTON CONSULTING GROUP

25

Read All About It
Our clients operate in nearly every industry and region aroundthe world, and they come to us for fresh approaches to theissues that matter most to them. Through a rigorous analysis
of each client’s individual situation, we develop customized
solutions that meet the organization’s specific needs. The caseexamples here illustrate how we help clients sharpen theircapabilities, create value, and deliver sustainable advantage.

Transaction and Integration
Excellence Product Series

The Clean Team Advantage
How BCG Enhances M&A Success

The Clean Team
Advantage
How BCG Enhances
M&A SuccessSell-Side Success
How BCG Supports Divestitures

Sell-Side Success
How BCG Supports
Divestitures

Successful Business Separations

Successful Target Search

How BCG Supports Carve-Outs

How BCG Helps Find Strong M&A Candidates

Successful BusinessSeparations
How BCG Supports
Carve-Outs

Successful Target Search
How BCG Helps Find Strong
M&A Candidates

26 									SUCCESSFUL DUE DILIGENCE

Successful Merger Integration
How BCG Helps Maximize the Value from a Deal

Successful Merger
Integration
How BCG Helps
Maximize the Valuefrom a Deal

Successful
and Dual Tracks

Successful IPOs,
Spin-Offs, andDual Tracks
How BCG Supports
Effective Transactions

Successful Merger Clearance
How BCG Helps Clear the Path for Acquisitions

Successful Merger
Clearance
How BCG Helps Clear
the Path for Acquisitions

The 2020 M&A Report
Alternative Deals
Gain Traction

BOSTON CONSULTING GROUP

27

BCG’s Transaction Center is the hub of the firm’s global M&A expertiseand provides businesses with end-to-end transaction support, including
strategic decision-making in mergers and acquisitions, preparing andexecuting divestitures, and supporting IPOs and spin-offs. The Transaction
Center combines BCG’s deep sector expertise with our comprehensive
knowledge of, and experience in, all aspects of M&A across all sectors
and industries. These services complement the process-focused offeringsof investment banks. With more than 300 professionals worldwide, weconcentrate on the commercial drivers of the business plan and equity
story. We help both corporate and private equity clients execute deals
efficiently and, more importantly, maximize value.

Contact:
Dr. Jens Kengelbach
Global Head of M&A
Managing Director and Senior Partner, Munich
Tel. +49 89 2317 4312
kengelbach.jens@bcg.com
https://connect.bcg.com/transactioncenter

28 									SUCCESSFUL DUE DILIGENCE

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture
their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients withtotal transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and drivingbottom-line impact. To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deepindustry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge
management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in auniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow ourclients to thrive.
© 2021 Boston Consulting Group. All rights reserved. 09/21
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