Commercial Diligence

CLARITY WHEN IT COUNTS.

Successful exits start with a great diligence. For more than two decades, Stout has been advising leading private equity firms and Fortune 500 corporates in the development and execution of inorganic strategies. From the early-stage identification of buy-side targets to sell-side support, we have been involved in the full lifecycle of mergers and acquisitions across each of our major industry verticals.

Our methodology is an evidence-based mix of strategic research and strategy consulting disciplines. We combine primary research and advanced, AI-enhanced analytical techniques to offer a complete perspective of the value at play. Our aim is to clarify what is likely, identify what is upside, and mitigate what are risks. At the conclusion of any engagement, we guarantee the confidence of understanding and conviction in your intended strategic direction.

Commercial Diligence

There are generally two truths underpinning your investment thesis: you like the target’s market and you like the target’s position.

And there is a good reason for that logic. Not surprisingly, revenue growth (both industry and alpha) is historically the largest driver of value creation for market investments. Commercial diligences ensure you get comfortable with potential outcomes across both dimensions and avoid surprises.

Commercial diligences are especially important. Disentangling COVID’s market impact (for better or worse) from management’s forecast requires original research, fact-based analyses, and highly relevant expertise. Moreover, you need validated insights fast. Our AI-enhanced diligence scans surface red flags, risks, and market anomalies earlier in the process so that we can focus on the results that really matter.

How Stout Can Help

We inform the investment decisions of our PE sponsors and strategic buyers with high-impact analyses on tight timelines. Delivering on this value proposition of speed and quality requires us to remain zealously focused on the investment thesis, testing the elements that are going to move the needle for the deal.

• We formulate a testable investment thesis for an acquisition candidate
• We define, size, and forecast growth for a target’s addressable market
• We determine the defensibility of the target’s base business
• We identify and assess feasibility of growth opportunities to determine what is underwritable versus what should be modeled as potential upside
• We evaluate the reasonableness of management’s forecasts and underlying assumptions

Vendor Due Diligence

There is a universal truth in conducting a corporate carve-out or when a private equity firm is selling a portfolio company: you want a successful exit.

This is easier said than done. There are a lot of variables at play and knowing how best to position your asset can be a complicated ask. Most often, this stems from too much attention to what you are selling and not enough on the asset’s position around what bidders are buying.

With vendor due diligence (VDD), there is a difference between good and great. Good VDD provides key data inputs for sales materials and validates management’s perspective. Great VDD generates a compelling equity story that resonates with potential sponsors. The good option gets you what you need. The great option gets buyers what they need.

How Stout Can Help

From day one, we approach our vendor due diligence through the prism of potential acquirers. We build an investment thesis, we stress test the asset’s attractiveness, and we identify the most exciting (and feasible) opportunities for the next hold period. The result is a well-articulated equity story, key data inputs for the sales material, and a playbook for management on how to address bidders’ toughest questions.

• We formulate a testable investment thesis for an acquisition candidate
• We define, size and forecast growth for a target’s addressable market
• We determine the defensibility of the target’s base business
• We highlight upside opportunities and articulate value creation potential across subsequent hold periods
• We identify key challenges from prospective bidders and develop playbook for management to address key questions during sales process
• We utilize AI-enhanced diligence workflows to sharpen insights in compressed timelines

Market Sizing

Strategic decisions are frequently hinged on assumptions around market size, as it informs the scale and magnitude of opportunities. And the higher the stakes of the decision, the greater the importance of accuracy in modeling the size and outlook.

Market modeling exercises are most common in M&A diligences. Buyers need to know the size and growth potential of a target’s market. And it is an imperative backdrop of the equity story for sell-side advisors. In addition, portfolio managers and large corporates require accurate size and growth metrics of key segments to clarify priorities and balance risks.

And as with most complicated processes, success is ultimately measured by the caliber and discipline of the approach. With decades of experience identifying and evaluating companies, we have the search-and-screen process down to a science. Whatever the driver, Stout can help.

How Stout Can Help

In many cases, market modeling is a subset of a broader consulting arrangement. But, it doesn’t have to be. With hundreds of market sizings under our belt, from $50 million regional serviceable addressable markets to $500 billion global total addressable markets, we have the process down to an art. We generate thoughtful, thoroughly-researched market models on tight timelines.

• We develop evaluative frameworks to support the identification of attractive market segments and geographies
• We define the target’s addressable market and segment based upon articulatable commercial logic
• We create proprietary datasets, using both strategic partnerships with data vendors and primary research, to support modeling exercise and ensure high confidence in the output
• We build top-down and bottom-up models for each relevant segment of the market
• We develop multiple scenarios with probabilistic weighting on likelihood to clarify distribution of potential outcomes across forecast period