{"id":36290,"date":"2021-06-17T10:54:05","date_gmt":"2021-06-17T14:54:05","guid":{"rendered":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/?p=36290"},"modified":"2021-06-17T10:54:05","modified_gmt":"2021-06-17T14:54:05","slug":"business-report-increase-value-with-commercial-due-diligence","status":"publish","type":"post","link":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/","title":{"rendered":"Business Report: Increase Value With Commercial Due Diligence"},"content":{"rendered":"<figure id=\"attachment_36291\" aria-describedby=\"caption-attachment-36291\" style=\"width: 196px\" class=\"wp-caption alignleft\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-36291\" src=\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c-196x300.jpg\" alt=\"\" width=\"196\" height=\"300\" srcset=\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c-196x300.jpg 196w, https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg 480w\" sizes=\"(max-width: 196px) 100vw, 196px\" \/><figcaption id=\"caption-attachment-36291\" class=\"wp-caption-text\">Patrick Farrelly is a managing director with UHY Advisors.<br \/>Courtesy UHY Advisors<\/figcaption><\/figure>\n<p class=\"p1\">By Patrick Farrelly<\/p>\n<p class=\"p2\"><span class=\"s1\">You are evaluating a target company that had higher than normal revenue growth in 2020. The target company presents you with a five-year forecast that maintains the above average growth experienced in 2020. <\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">Is the target company\u2019s spike in growth a one-time outlier event or is the growth sustainable? This is a common question many private equity firms currently face following a volatile 2020 business environment. <\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">The answer to this question is critically important since it impacts the target company\u2019s valuation and your firm\u2019s return on investment.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">The prior example highlights the importance of the buy-side due diligence process given the uncertainties in today\u2019s market. In the past, your firm may have engaged a third party for only financial due diligence (or quality of earnings \u2013 Q of E). However, complementing your financial due diligence with commercial due diligence can help mitigate deal risk, increase return on investment, and improve deal structure and price.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">What is commercial due diligence?<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">The goal of commercial due diligence is to assess the growth and profitability potential of your target company. Target companies\u2019 future financial forecasts often project high growth and profitability over the buyer\u2019s planned holding period. Commercial due diligence helps to validate the assumptions driving your target\u2019s financial forecast.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\"><!--more-->Commercial due diligence requires a thorough analysis of your target\u2019s internal and external environment. The typical approach includes examination of five key areas:<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">1. Target company assessment.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">2. Market and\/or product analysis.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">3. Customer analysis.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">4. Competitor analysis.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">5. Future growth and profitability assessment.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">Data for the analysis is gathered through primary research, such as interviews with the target\u2019s management team and external industry experts, and secondary research, such as market research reports and databases. The final deliverable is a detailed report that includes an executive summary of the analysis.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">What are the benefits of complementing commercial due diligence with financial due diligence?<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">It mitigates transaction risk. Commercial due diligence highlights potential commercial risks that could impact the sustainability of your target\u2019s business and\/or limit future growth potential. The analysis and data provided in the final report enables you to make informed decisions.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">It improves deal structure and transaction price. Commercial due diligence provides you with a deeper understanding of your target\u2019s business before negotiations begin. Targets typically know more about their business than you, and short exclusivity periods limit the amount of time you have to analyze your target\u2019s business. Commercial due diligence helps to close that knowledge gap and provides you with data to use in the negotiation of the transaction structure and price.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">It increases deal team capacity. Short exclusivity periods leave limited time for you to conduct thorough, detailed analysis. Hiring a third party to complete commercial due diligence increases the capacity for your deal team to focus on other value add tasks related to the deal.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">It identifies growth opportunities that increase ROI. Commercial due diligence can reveal insights about untapped potential in your target company\u2019s strategy, operations, sales channels, end markets, customers, and\/or competitors. Exploiting this potential can drive growth in your target and increase the deal\u2019s ROI. Identifying these opportunities before the deal closes allows for quicker implementation post-close.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">It provides reassurance to lenders. Banks may request or require a commercial due diligence report from an independent third party as part of the loan evaluation process.<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">Commercial and financial due diligence are equally important components to the overall evaluation of a target company. <\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By Patrick Farrelly You are evaluating a target company that had higher than normal revenue growth in 2020. The target company presents you with a five-year forecast that maintains the above average growth experienced in 2020. Is the target company\u2019s spike in growth a one-time outlier event or is the growth sustainable? This is a [&hellip;]<\/p>\n","protected":false},"author":89,"featured_media":36291,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,22],"tags":[],"class_list":["post-36290","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-reports","category-financial-planning-investments"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\r\n<title>Business Report: Increase Value With Commercial Due Diligence - Saratoga Business Journal<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Business Report: Increase Value With Commercial Due Diligence - Saratoga Business Journal\" \/>\r\n<meta property=\"og:description\" content=\"By Patrick Farrelly You are evaluating a target company that had higher than normal revenue growth in 2020. The target company presents you with a five-year forecast that maintains the above average growth experienced in 2020. Is the target company\u2019s spike in growth a one-time outlier event or is the growth sustainable? This is a [&hellip;]\" \/>\r\n<meta property=\"og:url\" content=\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/\" \/>\r\n<meta property=\"og:site_name\" content=\"Saratoga Business Journal\" \/>\r\n<meta property=\"article:published_time\" content=\"2021-06-17T14:54:05+00:00\" \/>\r\n<meta property=\"og:image\" content=\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg\" \/>\r\n\t<meta property=\"og:image:width\" content=\"480\" \/>\r\n\t<meta property=\"og:image:height\" content=\"733\" \/>\r\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\r\n<meta name=\"author\" content=\"Jake Van Ness\" \/>\r\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\r\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Jake Van Ness\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\r\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/\",\"url\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/\",\"name\":\"Business Report: Increase Value With Commercial Due Diligence - Saratoga Business Journal\",\"isPartOf\":{\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg\",\"datePublished\":\"2021-06-17T14:54:05+00:00\",\"dateModified\":\"2021-06-17T14:54:05+00:00\",\"author\":{\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#\/schema\/person\/a11ec438b5f0e57f1156754ba3931b86\"},\"breadcrumb\":{\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#primaryimage\",\"url\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg\",\"contentUrl\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg\",\"width\":480,\"height\":733,\"caption\":\"Patrick Farrelly is a managing director with UHY Advisors. Courtesy UHY Advisors\"},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Business Report: Increase Value With Commercial Due Diligence\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#website\",\"url\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/\",\"name\":\"Saratoga Business Journal\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#\/schema\/person\/a11ec438b5f0e57f1156754ba3931b86\",\"name\":\"Jake Van Ness\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/8083519989e12032abdd06a668982ef4?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/8083519989e12032abdd06a668982ef4?s=96&d=mm&r=g\",\"caption\":\"Jake Van Ness\"},\"url\":\"https:\/\/www.saratoga.com\/saratogabusinessjournal\/author\/jakev\/\"}]}<\/script>\r\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Business Report: Increase Value With Commercial Due Diligence - Saratoga Business Journal","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/","og_locale":"en_US","og_type":"article","og_title":"Business Report: Increase Value With Commercial Due Diligence - Saratoga Business Journal","og_description":"By Patrick Farrelly You are evaluating a target company that had higher than normal revenue growth in 2020. The target company presents you with a five-year forecast that maintains the above average growth experienced in 2020. Is the target company\u2019s spike in growth a one-time outlier event or is the growth sustainable? This is a [&hellip;]","og_url":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/","og_site_name":"Saratoga Business Journal","article_published_time":"2021-06-17T14:54:05+00:00","og_image":[{"width":480,"height":733,"url":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg","type":"image\/jpeg"}],"author":"Jake Van Ness","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Jake Van Ness","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/","url":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/","name":"Business Report: Increase Value With Commercial Due Diligence - Saratoga Business Journal","isPartOf":{"@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#website"},"primaryImageOfPage":{"@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#primaryimage"},"image":{"@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#primaryimage"},"thumbnailUrl":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg","datePublished":"2021-06-17T14:54:05+00:00","dateModified":"2021-06-17T14:54:05+00:00","author":{"@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#\/schema\/person\/a11ec438b5f0e57f1156754ba3931b86"},"breadcrumb":{"@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#primaryimage","url":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg","contentUrl":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-content\/uploads\/sites\/48\/2021\/06\/uhy-column-farrelly-c.jpg","width":480,"height":733,"caption":"Patrick Farrelly is a managing director with UHY Advisors. Courtesy UHY Advisors"},{"@type":"BreadcrumbList","@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/2021\/06\/business-report-increase-value-with-commercial-due-diligence\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/"},{"@type":"ListItem","position":2,"name":"Business Report: Increase Value With Commercial Due Diligence"}]},{"@type":"WebSite","@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#website","url":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/","name":"Saratoga Business Journal","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#\/schema\/person\/a11ec438b5f0e57f1156754ba3931b86","name":"Jake Van Ness","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/8083519989e12032abdd06a668982ef4?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/8083519989e12032abdd06a668982ef4?s=96&d=mm&r=g","caption":"Jake Van Ness"},"url":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/author\/jakev\/"}]}},"_links":{"self":[{"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/posts\/36290"}],"collection":[{"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/users\/89"}],"replies":[{"embeddable":true,"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/comments?post=36290"}],"version-history":[{"count":1,"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/posts\/36290\/revisions"}],"predecessor-version":[{"id":36292,"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/posts\/36290\/revisions\/36292"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/media\/36291"}],"wp:attachment":[{"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/media?parent=36290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/categories?post=36290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.saratoga.com\/saratogabusinessjournal\/wp-json\/wp\/v2\/tags?post=36290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}