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The Client 
Established healthcare firm with over US$4 billion of
assets. As market leader, competitive and regulatory changes prompted
management to make strategic investments in what were thought to be more
promising areas.
The Deal
Consultants and management identified an acquisition
candidate in a complementary market with superior growth prospects (a number of
comparable firms had just completed IPOs of stock, underwritten by the most
prestigious investment banks, to fund their roll-up strategies; this area was
considered “very hot”).
The consultants and management estimated that $25
million would be required over four years to grow aggressively and reach
profitability (EPS basis). The investment would be funded with internal
resources.
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The Needs: Strategic Analysis, Due
Diligence, Value Driver Analysis and Value-at-Risk Analysis
Before approving the investment, the executive committee
of the board wanted objective advice from corporate finance and strategy
experts who understood their industry.
The Solution
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Analyze the target industry and thoroughly examine the
performance and business of the investment candidate, including tests of
assumptions and models.
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Report to the executive committee that the target
market fundamentals were likely flawed and that the capital requirements were
at least $50 million, not $25 million.
The Outcome
The board of directors abandoned the prospective
investment as well as the strategy of investing in non-core businesses.
Post script: all but a few of the “very hot” roll-up
companies that went public ultimately collapsed or were de-listed from trading
in the public markets.
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