Operational Due Diligence for the Acquisition of a Chinese Design Company

The client, a Swedish private equity firm, generally invests in Nordic companies but set out to acquire a Chinese design company. Before the acquisition, the client was in the process of evaluating the target company. Yet, due to limited experience in conducting operational due diligence and not being present in China, the client could not proceed with the acquisition.

With the purpose being set, the client turned to ARC Consulting for support in performing in-depth operational due diligence to identify potential risks and problems, as well as strengths and opportunities of the Chinese design company’s financial status, capabilities, and operational processes.

Consultants discussing a due diligence report

The project was carried out in three steps to provide a comprehensive operational due diligence report, ensuring that the client had a clear overview of the target company’s operations:

  • Information gathering & internal preparations
  • On-site visit & operational process verification
  • Report & final recommendations

Information gathering & internal preparations:

As a first step, ARC Consulting collected all necessary data of the target company, prepared a list with relevant questions, and created a support document with a list of the target company’s operational functions. This step helped ARC Consulting to get a clear overview of the company’s existing procedures, before a first visit could be made.

On-site visit & operational process verification:

After the information gathering, ARC Consulting arranged an on-site audit at the target company’s facilities, to gain a deeper understanding of the operational processes. The audit also helped to cross-check and verify the relevant information, data, and documents. Thanks to the on-site visit, confirmation could be made that the client provided accurate information.

Report & final recommendations:

Finally, a comprehensive report was prepared with the results to the Swedish client, including the viewpoints and recommendations regarding the target company.

The final report provided a comprehensive evaluation of the target company’s operational processes, including the main areas covered under the section highlighted good practices and suggested improvement areas of each operational function at the target company.

The main areas reviewed and covered in the report were:

  • Management and organization
  • Business planning cycle
  • Design process
  • Quality management process
  • Purchasing process
  • Market expansion process
  • Key account management
  • Logistics and shipping process
  • Overview of finance and report function

The report enabled client to have a broader and deeper understanding of the target company’s operational processes. The research and recommendations helped the client to facilitate a decision on how to proceed with the acquisition.

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