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Commercial due diligence:
mining services provider |
Context / Scope of project
Our client, a leading Australian private equity firm (over $500m), had a strong track record investing outside the resources sector. However they were keen to invest in the fast growing mining services sector; a sector they were unfamiliar with. The PIP team undertook a rapid review of the specific market including market growth, market structure and competitive performance of the key players. PIP also reviewed the immediate growth opportunities of the target, its performance on key purchase criteria and risks. Based on this work PIP formed a view on management’s forecasted revenue and EBITDA.
Key Insights:
- Target positioned to maintain existing revenue and earnings profile given positive market outlook
- However facing significant challenges to future growth
- Difference in buying criteria of small and large customers creates challenge to position itself for big customers
- Growth outside historic core market likely to require significant capital investment
- Lumpy revenue profile concentrated in few key projects creates significant risk around revenue pipeline (over 80% of the revenue with 3 customers)
Outcome:
- Client did not pursue deal
- Able to reach decision in less than 2 weeks of PIP due diligence
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What we did:
- Provided focused insight into key market drivers, dynamics and outlook to client (unfamiliar with the sector)
- Reviewed target’s competitive positioning and growth options as a small player in a concentrated market
- Drilled down on expected project wins to pressure test target’s revenue pipeline
- Evaluated an immediate bolt-on acquisition that management wanted to acquire.
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