Economic Due Diligence Fundamentals

Transcription

1 Economic Due Diligence Fundamentals Public Sector Management Workshop June 14, 2011

2 Welcome! Introductions Will Fong, Senior Manager Business Consulting & Project Management Overview of the Presentation Due Diligence: What is it about? Why is it important? Keys to Solid Due Diligence Slide 2

3 Common Due Diligence Myths Due Diligence vs. Economic Development Positive vs. Negative Bureaucratic vs. Streamlined Cost vs. Investment Process vs. Event Slide 3

4 A Great Due Diligence Process is: Tailored to meet your needs Designed like a funnel, to minimize your investment of time/money/effort up-front Does not view everything as a threat Transparent and Objective Well understood and enforced for everyone Slide 4

5 What is Due Diligence? A process where you look closely at any new business opportunity to answer: Does this fit with our strategy? Is this a good business to get in to? What is this business worth? What are the risks? Slide 5

6 The Value of Due Diligence Focuses Your Economic Efforts on Key Objectives Makes More Efficient Use of Resources Protects Your Investment Capital Slide 6

7 High-Level Due Diligence Process New Opportunity Identified Initial Assessment Research Analysis & Evaluation Go / No-Go Verification & Negotiation Slide 7

8 Or. New Opportunity New Opportunity New Opportunity New Opportunity New Opportunity Research Initial Assessment Analysis & Evaluation Verification & Negotiation Slide 8

9 Your Process Needs a Plan What types of business will help achieve the Economic Objectives? What levels/types of Risk are acceptable? What types of ownership are desired? What industries are desired? Are there any prohibited investments? How much of our Culture and Values need to be reflected? Slide 9

10 Economic Planning Process Assess Your Situation Determine Your Needs Define Objectives What do you have to work with? What are your Assets? Inventory of available assets What is needed for the community to stabilize and grow? Defined Vision and Goals for the economy What financial objectives need to be met in order to meet your needs? Specific outcomes designed to leverage assets & achieve goals Slide 10

11 Matchmaking: Objectives & Opportunities The key to finding a consistent match is to define your dating profile Define your priorities based on your objectives: Employment opportunities Profit Training Hard Assets And.. Stick to your profile & update it Slide 11

12 Investment Policy Statements The priorities for your investments need to be translated into criteria and formalized within an Investment Policy Statement along with: Overall economic goals Timeframe Investment vehicles & allocation Prohibited investments Mechanisms for policy maintenance Slide 12

13 Where Do Opportunities Come From? Slide 13

14 Where Do Opportunities Come From? You can t always control where they come from but you can control how you respond. Ask yourselves: Who is representing the Nation in the market? Do they understand the Ec Dev Plan? Can they communicate it to others? Conduct simulations/dress rehearsals Slide 14

15 Step 1: Initial Assessment A simple checklist of questions: Does the opportunity fit our business criteria/economic objectives? Is this too good to be true? Is there a conflict of interest? What are the vendor s needs and reasons for selling? New Opportunity Identified Initial Assessment Research What value do we bring to this deal? What s expected of us? Price versus available capital? Analysis & Evaluation Go / No-Go Would this business add value to the community? Verification & Negotiation Slide 15

16 Step 2: Research Time to take a closer look: Research any publically available information Ask for references, and follow-up Conduct further market research if necessary Examine the strength of competitors Look inside: Financial Statements, Assets, Liabilities Operations Customers/Sales Seek professional help where appropriate Slide 16

17 Step 3: Analysis Review all the research material. What is it telling you? Do you understand what it takes to be successful in this business? Time for the 4-letter words: SWOT RISK Strengths Weaknesses Opportunities Threats Slide 17

18 SWOT Analysis Strengths of the Business: Weaknesses of the Business: Opportunities in the Market: Threats in the Market: Slide 18

19 How Attractive is the Market? Threat of New Direct Competitors Bargaining Power of Customers Level of Industry Rivalry Bargaining Power of Suppliers Threat of Indirect Competitors Slide 19

20 Probability Risk Mapping High A C E Med D B F Low Med High Impact Slide 20

21 Risk Management Identify Monitor Map Manage Assign Slide 21

22 Handling Risks Green Risk is minimal, does not represent a true threat PROCEED Yellow Risk exists, but can take action to make the risk manageable PROCEED ONCE RISK IS MANAGED Red Risk represents a true threat, is not manageable DO NOT PROCEED Slide 22

23 Step 3/4: Valuation & Negotiation What s the business worth? Existing businesses: Assets Technology (intangible assets or intellectual property) Cash flow Synergy New businesses: Return on investment Slide 23

24 When to Use Professionals Valuators Objective assessment of present/future value Accountants Review of financial statements & tax implications Corporate Finance Corporate structuring, negotiations, financial analysis Lawyers Reviewing transaction documents & ensuring compliance Consultants Business planning, Implementation support, Training Slide 24

25 The Best Value of Due Diligence It puts your organization here Slide 25

26 Questions & Discussion Slide 26

27 For More Information Will Fong, CMC MNP Consulting Phone: th Ave SW Calgary, AB T2P 0T8 Slide 27