Whether you’re in the early stages of merging with another business or the potential acquisition of another company means expanding your reach within your chosen market, a detailed assessment of the assets involved is an integral and critical part of this intricate process.
This procedure – known as due diligence – guides business owners through the mergers and acquisitions process, bringing clarity to the proceedings with an accurate and informative valuation of the prospective company’s’ assets, its business capabilities and its overall financial performance.
Conducting successful and thorough due diligence (DD) means investigating many different channels, including:
- Digital Due Diligence: An assessment of the digital infrastructure of a business. Notably, systems and data handling, digital compliance, security websites, privacy policies, social media assets & more.
- Administrative Due Diligence: Confirmation of the business structure, such as the number of facilities, occupancy rates, business locations, property leases/ownership, number of employees & more.
- Human Resources Due Diligence: Assessment of total employees including all positions, vacancies, assessment of salaries and bonuses, HR policies regarding annual leave/sick leave, pending legal cases, information regarding employee contracts & more.
- Tax Due Diligence: Tax liabilities will also be assessed. Including copies of all tax-related documents, past or pending tax audits.
- Legal Due Diligence: An assessment of any potential legal risks within the company and analysing these risks so a deal or conclusion can be met.
Only with a detailed and comprehensive due diligence approach, can businesses ascertain the true value of a potential acquisition and have the relevant information they need to advance within the M&A process. However, as these kinds of business endeavours are done with ROI in mind, a full Competitor Analysis must be also drawn and evaluated as part of due diligence practice.
Establishing a thorough and investigative analysis of the competition within the market or your prospective acquisition will uncover multiple findings that are crucial to the overall digital footprint of the business you’re hoping to obtain. And critically, highlight the potential hazards of this complicated and potentially high-risk acquisition. Let’s take a closer look and competitor analysis and due diligence.
Why Is Competitor Analysis an Important Part of Due Diligence?
While it’s important for businesses to undertake competitive analysis routinely, in terms of the M&A process, competitive analysis gives buyers a unique and unabashed view into the current market position of the business in question. Highlighting potential market saturation, the best practices within the industry and any potential gaps in the market that haven’t yet been exploited. Understanding what competition, you’ll be facing and how hard it will be to make an impact gives potential buyers an edge, as they’ll have a unique, impartial perspective of where the company is excelling and where there is room for improvement.
It’s clear that a strong understanding of your competitors is crucial to the due diligence process – especially in terms of your specific acquisition, however, competitor analysis can also give potential buyers a better understanding of the market dynamics of their prospective industry.
What Are the Benefits of a Competitor Analysis Within the Due Diligence Process?
The due diligence process is all about gathering as much information about a prospective business as possible, so you can make an informed decision before going forward. Competitor analysis, is an important cog within this intricate moving machine, providing additional knowledge and insight into how the business is viewed by customers and its target market. Other benefits include:
Revealing Who the Competition Is
A detailed and comprehensive competitor analysis will highlight your potential Direct and Indirect competitors. Your Direct competitors will be offering identical online-based services, while Indirect competition may share the same online traffic as you, which is what you’ll be competing for. You’ll also have a closer look at the digital marketing approach of your competitors and what they offer.
Discover If You’re at A Disadvantage
If sales and revenue are struggling due to a lack of market share, then a detailed competitor analysis could give you the answers you need to ensure a better ROI.
Highlight Areas That Need Improvements
Being stuck at a competitive disadvantage means struggling to keep up with your business rivals. Competitor analysis will emphasize areas that are struggling as well as the changes that need to be implemented to drive future success and growth.
Emphasize Your Edge
Interestingly, your potential acquisition could already have a competitive edge, and a strong analysis will only help you to underpin and strengthen the untapped potential within your prospective market. Giving you the insight, you need to enhance products and services and consequently increase your revenues.
What Features Are Considered to be Essential in a Competitor Analysis?
Collecting thorough and inclusive data on your prospective competitors as part of the due diligence process will create an accurate picture of where your potential acquisition sits within its current market. Understanding where the business in question compares can be done by examining specific features within a competitor analysis. Let’s explore them here.
Their Market Share
Recognising the market share of your competitors will give potential business owners a strong indication of how competitive their prospective market truly is. You’ll be able to see who your strongest competitors really are and even gain an insight into potential trends or declines within the industry.
Their Pricing Policies
Understanding how your competitors are making a profit and analysing how much they’re charging for products and services can give you a strong insight into their entire pricing strategy. Which, moving forward can give your prospective acquisition a competitive edge.
Their Marketing Strategy
The success of any enterprise is often determined by the strength and the influence of a robust marketing strategy. Therefore, analysing the marketing approach of competitors within your future market will highlight the current success of their digital and traditional marketing tactics, including their SEO strength, current campaigns, and the success of other forms of marketing such as print, paid search, social media, display and even broadcasting.
Their Specific Strengths and Weaknesses
A strong competitor analysis will highlight exactly what is making your competitors so successful and why they’re (currently) enjoying such a generous share of the market. Whether they’re particularly effective at raising brand awareness through engaging campaigns and stellar customer service, or they a specific product that customers enjoy, establishing the strengths of your competitors can pinpoint where you need to implement focus and energy.
Likewise, establishing their weaknesses could give the business in question, a chance to make waves within the market and potentially turn the heads of consumers who aren’t having their requirements met. Whether it’s website issues, poor customer service or inadequate products, identifying these vulnerabilities gives your potential business acquisition competitive strength.
It’s easy to think that a competitor analysis would only focus on the numbers and the levels of customer satisfaction. However, in terms of due diligence and inclusivity, a closer look at the company culture of a potential competitor can highlight more than just the type of biscuits they have in the break room.
A competitor with a strong and positive company culture will have no problem attracting a wide range of incredibly talented and driven candidates, making it easier for them to drive their business forward. Gaining an understanding of employee retention rates is also a strong indicator of a business that is employee-focused or one that is struggling to fill its positions.
The due diligence process is an essential part of the acquisition process; however, competitor analysis can provide you with a stronger insight into the strengths, weaknesses, opportunities and even the prospective threats of your potential business investment.
If all this seems a bit much or you would like to gain a deeper understand on any of the elements discussed, get in touch and let’s arrange an initial chat.