Mergers & Aquisitions

Order Prospect Analysis (Market Due Diligence)

Problem

A machinery manufacturer is going to be bought out by a private investment company. The company produces machines worth tens of millions of dollars. The sale of one machine, from the receipt of order to the signing of the contract, can take up to 18 months. Potential sales are integrated into the company's strategic planning. The projected order volume, with a planning horizon of up to two years, does not necessarily reflect actual sales.

Project Goal

The goal of the project was the quantitative and qualitative appraisal of the machinery manufacturer's expected orders during the next 12 to 18 months.

Procedure

Preparation of Company Background Information

• Strategic Order Planning
• Operative Order Planning
• Customer Structure Analysis
• Analysis of Historical Order Development
• Sales/Profit/Price Analysis

Qualitative Interviews, with:

• Trade Organization Employees
• Industry Experts
• Customers and Non-Customers
• Trade Magazine

Quantitative Study with Potential Customers:

• Duration of the Business Relationship
• Number of Machines in Inventory
• Frequency of Machine Purchase
• Reputation of the Machine Manufacturer
• Probability

Projection and Discounting of Profits

Sales Prognosis:

• Number of Potential Machine Sales
• Calculation of Sales Revenue
  
  Expected costs:
• Necessary Resources
• General Price/Cost Development
• Determination of the Risk Premium

Result

The result of the project was an accurate quantitative measurement of the expected order volume for the next 18 months including an analysis of the potential sales revenue.

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