Analysis of Acquisition Target Uncovers Unexpected Risk
After a pilot project, management of the M&A practice of a leading investment bank found itself intruiged by SDG's process for analyzing the value and risk drivers of acquisition transactions. But management was not yet ready to turn away from decades of experience in traditional analysis. Management commissioned another pilot, comparing SDG's approach with the bank's traditional approach in a head-to-head, real time analysis of a specific acquisition target.
Using both publicly available and the bank's own proprietary information, SDG conducted a Decision Quality (DQ) analysis in parallel with the traditional work performed by the investment bank. The DQ analysis differed from a traditional approach by being a comprehensive, “bottom-up” view of the underlying drivers of value and explicitly taking into account future market uncertainty, customer acceptance, and execution risk.
Both analyses were completed in the same tight timeframe. However, SDG's DQ analysis revealed a significant flaw in the “pitch” document created by the investment bank to represent the company for sale. Not only did the traditional analysis fail to reveal this issue, but, in fact, the problem was so severe that the client decided to immediately withdraw from the deal, thus avoiding a potentially value-destroying acquisition.
