A client asked us to perform a due diligence audit and estimate the fair market value of a Wireless Internet Service Provider located in Illinois. Several other suitors were also looking at the company, and we had to work quickly so that our client could decide whether or not this was a good opportunity and, if so, establish a fair purchase price.
What We Did
We prepared a list of more than 50 specific questions for investigation that covered all aspects of the acquisition that would be relevant to this decision, including market opportunity, competitive landscape, barriers to entry, technology, sales and marketing, operations and processes, management team, financial performance, and subscriber base. Then, we met with the management team at their headquarters, assessed their operations, reviewed and analyzed company financial and operating documents, and posed our own questions.
Our meetings and supplemental research enabled us to complete a first-pass assessment of the opportunities, risks, and market potential presented by the acquisition opportunity whereby we were able to deliver a complete report to our client in less than two weeks. The report included our recommendations, supported by analysis of financial documents, estimates of valuation based on several alternative measures of value, a SWOT analysis (of strengths, weaknesses, opportunities, and threats), and an assessment of risks. We presented several growth scenarios, ranging from extremely conservative to moderately optimistic, and quantified the performance of the company using a discounted cash flow analysis. Then we compared the company with a basket of peer companies based on price-to-revenue multiples, price per subscriber, and other measures. We also presented the client with a large binder of current articles on the market, competition, products and services, licensing and frequency issues, and other areas of concern.
The client entered negotiations armed with a thorough understanding of the company’s strengths, weaknesses and potential for growth, and an independent assessment of the value of the deal. Ultimately the client decided not to make an offer, based on the significant risks we uncovered, coupled with the high price-tag set by the seller.
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