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BUY SIDE | Add-on IT Due Diligence Assessment Identifies Key Risks and Opportunities in Acquisition of Chemical Manufacturer

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Client Profile & Challenge

Our client is a Private Equity-owned chemical distributor looking to grow through acquisition by expanding both its core business and product portfolio.

Challenge:

Our client is a chemical distributor whose core business is the distribution of chemical raw materials. Given the commoditized nature of the industry, there is limited room to grow margins in their traditional offerings. Because of that, our client was pursuing the acquisition of a target that specializes in the formulation and distribution of proprietary agricultural nutritional products.

The Target was a small company with a relatively standard IT infrastructure supporting their business operations. Messina Group was brought in to assess their IT, cybersecurity, and business processes from an integration perspective. The objective was to identify any major concerns that may prevent the deal from moving forward, areas of concern to address post-acquisition and identify value creation opportunities post-acquisition.

Solution Overview

Messina Group performed an in-depth assessment of Target’s current state IT processes, IT organization, governance, infrastructure, architecture, data, cybersecurity, and business processes. This assessment was performed through a thorough documentation review and 10 stakeholder interviews, including all key Target stakeholders and Target’s IT contractor and Managed Service Provider.

We utilized Messina’s IT Due Diligence framework to guide this discovery process and identify key findings. This framework includes in-depth assessment and scoring across the business, architecture current and future state, capabilities scorecard, and cybersecurity scorecard.

Using this framework, we uncovered several key findings, including:

– The Target’s cybersecurity capabilities were significantly below baseline, even for a company of their size, with an absence of most basic features. If these shortcomings were not addressed immediately post-acquisition, they presented a major risk.
– The Target’s business was supported nearly entirely by a single Mac-based application being used as its ERP. While the configuration was effective for their current state of business, there were significant scalability concerns.
– The ERP and business processes were operationally effective but highly dependent on institutional knowledge from long-tenured employees. Without significant enhancements in documentation and processes, business continuity would present a significant risk.
– The Target had no in-house IT resources (the President and CFO were the primary party responsible for IT development) and no formalized IT strategy.

Based on these findings, Messina Group delivered a value creation roadmap for the short-term, medium-term, and long-term based on cost, business value, and risk. Near-term recommendations were focused on business-critical activities to reduce risk and ensure success, while medium- and long-term initiatives focused on value creation.

Solutions:

Business Advisory & Transformation, IT/Technology Due Diligence, M&A Advisory Services

“AFTER” BUSINESS VALUE CREATION

Following our assessment, our client decided to move forward with the acquisition, giving them a significant addition to their product portfolio with high margin and revenue potential.
Messina Group’s comprehensive approach to IT Due Diligence and strategic implementation enabled our client to identify hidden risks, prioritize investments, and ultimately achieve real business value through their acquisition.
Our integration roadmap identified 21 separate initiatives to ensure a successful acquisition and drive significant medium- and long-term value. These initiatives combined Messina Group’s IT and business expertise, ensuring that technology and business initiatives work hand-in-hand to drive the maximum business value for our client. These initiatives included:

– Immediate MSP standardization and cybersecurity enhancements to ensure Target met baseline capabilities at minimum.
– Business Process and Technology documentation to ensure scalability and reduce risk of continuity concerns.
– Implementation and integration of key applications to support business processes and drive value, particularly Salesforce CRM and PowerBI, for enhanced data and reporting capabilities.
– ERP data migration, ERP selection and ERP selection to implement unified, modern, and scalable ERP across the enterprise.
– Quoting and pricing tool build to drive additional margin and revenue through data- and process-driven enhancements to their pricing approach.