This loss-making €150m company was being sold to a trade buyer. We were retained to carry out acquisition analysis and due diligence. The key issue was not purchase price but likely future cash flow. The acquisition was predicated on a change in sales channel and sales strategy.

We carried out a detailed French market analysis, interviewing customers and competitors; we also analysed manufacturing structure, manufacturing efficiency, distribution channels, and product and customer profitability. These identified greater profit improvement opportunities than previously recognised, through cost reduction, and growth of profitable sales of complex products, e.g. tickets and labelling.

A stage was reached where the acquisition looked attractive and cash flow plans looked sound. However we continued to explore some puzzling areas of weakness, difficult to unravel because of a complex mix of different sites, products, customer sectors and order structures.

The vendor had claimed losses were due to short-term factors, including management changes, problems on introducing new products, and disruption after the sale of another division. Sector time trend analyses did not bear out these explanations and revealed a previously unrecognised severe and rapid decline in key areas in the final months of the previous year. Pressing the vendor to release previously unpublished monthly data for the current year, we found the downward trend continuing revealing a weakness no one had previously detected. We presented a detailed report, and the buyer withdrew.

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