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Context / Scope of project
A UK-based multinational wanted to sell their Australian division, which had high exposure to the rebounding resources sector. Our client, a large, global private equity firm, liked the growth in this sector but wanted a better understanding of near-term customer and competitor dynamics and the economics of the services sector.
Key Insights:
- Target positioned to achieve management forecast revenue and earnings profile given continued strong market growth and loyal customer base
- However, facing significant challenges relative to competitors
- While service, reliability and strength of relationships were rated highly by customers, high-cost asset-base created significant price differential to maintain margins
- Specialised equipment positioned the target well with a sub-set of customers, but created a disadvantage in some geographies with strong projected growth
- Main competitor already well-established in parallel services market, enabling load-balancing to increase asset utilisation.
Outcome:
- Client did not pursue deal.
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What we did:
- Established financial stability of current customer base via detailed review of commodities market forecasts and interviewed current and past customers to understand loyalty to the target
- Demonstrated target’s declining share of the growing market, with customers churning to lower-cost providers
- Estimated future market growth based on planned projects and estimated project size (resource extraction, staff numbers, service requirements)
- Assessed threats to the target’s growth prospects by examining likely structural changes to the services market, driven by step-changes in infrastructure availability to service continued growth
- Evaluated an immediate bolt-on acquisition being considered by our client.
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