M&A Spotlight: Buy-Side Due Diligence for Manufacturing Fixer Uppers

M&A Spotlight:  Buy-Side Due Diligence for Manufacturing Fixer Uppers

M&A Spotlight: Buy-Side Due Diligence for Manufacturing Fixer Uppers

  • On 12/06/2019

With a fixer upper, the need to understand the target company’s prospects for realistically making tangible operating improvements takes on a special significance


While buy-side due diligence can and should be comprehensive and multi-disciplinary, operational due diligence takes on a special significance when contemplating the acquisition of a manufacturing fixer upper.  A finance-oriented view of a target company’s operations is simply not enough to effectively assess what will be required to address the business’ true operating challenges going forward.  A deep dive into the mechanics of the company’s operations is required.

Elements of an effective due diligence process for the acquisition of a manufacturing fixer upper include:

manufacturing due diligence

Gap Analysis

A detailed gap analysis is needed to see where different facets of the company’s operations may deviate from best practices.  This is an area where a manufacturing consultant with hands-on operations management and M&A experience is essential to validating key assumptions supporting a investment thesis where value creation is a primary tenet.

Operating areas where key improvement opportunities are often likely to be found include:

  • Shop floor manufacturing labor efficiency
  • Production planning, scheduling, and control
  • Purchasing
  • Inventory management
  • Engineering change management
  • Warehouse management

Operational Improvement Plan

Once the gap analysis is complete, a project plan can be developed to describe how and when the identified gaps should be closed.  This is where realism and pragmatism really count.  It’s important to know how the improvement objectives are related and inter-dependent.  This approach allows the acquirer to develop clear and reliable expectations of when planned improvement efforts are likely to bear fruit.


Financial Model Impacts

Every acquisition due diligence effort involves a detailed financial model to rationalize historical performance and formulate a business valuation.  With a manufacturing fixer upper, the financial model serves the additional role of projecting future performance.  The manufacturing operations improvement plan then becomes an important input to the financial model to forecast cash flow, profitability, and the potential for future value creation.


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