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Diligence™: Examples |
Individual
Valuations:
A National Utility had decided
to improve its basic services and to expand
its product offerings abroad. This was
dependent on leveraging a new technology but finance
was only partly available through internally generated
funds. The utility and an overseas bank had held early-stage
talks but there was a high degree of mismatch concerning
how the adoption of the new technology would affect shareholder
value. The parties jointly commissioned an investigation
into the main ways that the expansion could be undertaken
and how each would create value and at what risk. We
evaluated the core technology and developed models for
each of the main implementation choices. This not only
allowed the parties to agree on value but to align behind
a single implementation alternative that met both their
needs for risk and return. The team also facilitated
the final discussions between the two parties resulting
in a formal bid of $130 million.
A Worldwide
Communications Technology Company had
the opportunity to buy an innovative package
developed by a small research and development group.
The
technology allowed the integration of novel
voice recognition,
natural language processing and other artificial
intelligence features into the client's existing
network products. We were able to model the value
of the package under various scenarios and provide
further due-diligence research to show that the
innovation returned a worthwhile value-impact
(with respect
to the price asked) in only a small percentage
of future scenarios. On the basis of our
evaluation,
the client chose not to acquire the technology.
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Portfolios:
A
Global Chemical Group had over 80 new potential
commercial initiatives designed to create better
value and risk
balance within the divisional portfolio. Capital
rationing
would not allow all programmes to be implemented.
The position was further complicated by the fact
that some
of the projects would use common assets and processes
to various extents, making attributing value
to individual programmes (for ranking purposes)
impossible.
After
structured group interviews to identify the risks,
values and constraints
of the initiatives, we developed a custom ‘systems-dynamic’ model
which pinpointed the subset of projects that
would maximise the portfolio value under the
identified
assumptions and uncertainties. This created an
expected increase
in value of approximately $300 million whilst
also improving
anticipated performance against other corporate
metrics. The model was retained after the initial
evaluation
to maintain the portfolio when further new initiatives
were
created.
One
of the top five Natural Resource Companies wanted
to rationalise its portfolio of existing and potential
asset and R&D investments but the model in use had
become unwieldy. The existing approach had factored in
nearly every aspect of value and risk including tax differences
in each operational country and indirect commercial and
technical risks from other parts of the supply chain.
The main problem was that the recommended “answer” seemed
to be sensitive to absolutely every assumption in the
model. Even small changes in assumptions caused radical
shifts in required strategy. Our approach was to go back
to basics. Through structured discussions at ‘C-’ and
operational levels across the various divisions and
groups we were able to separate the factors that were
marginal
from those that really drove potential value. The final
model (although still sizeable and using state-of-the-art
simulation techniques) was much more portable and yielded
very fast and stable results since it factored in only
those assumptions that made a difference to strategic
choice. The process led to the elimination of negative
value opportunities that had previously appeared attractive.
Moreover, resources were targeted towards opportunity
combinations that created an extra value of about $1billion.
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