Tuesday, June 12, 2012 | Posted by: Fiona Cullinan
Categories: India, Thought leadership | Tags: investment, growth, research, performance, due diligence, corporate finance, conference, strategy, Story of the Deal, advisory, demand, supply, Lushani Kodituwakku, competitors, market research, Commercial Due Diligence, CDD, market assessment, leisure sector, hotel
Any company seeking to expand overseas needs to do its homework first. We often blog about the issues facing UK companies seeking growth in India or China, but how does this work in reverse? How can fast-growing BRIC corporates, for example, assess a move to the UK?
For some insight on this, we’re sharing a recent case study, in which Grant Thornton helped an Indian telecoms provider weigh up a UK market opportunity in the hotel and leisure space. While we’re looking at inbound business opportunity assessment here, the general approach will be similar for any company looking to expand its operations abroad.
We asked Lushani Kodituwakku, Head of Strategy and Commercial Advisory, to tell us how her team helped prepare the company for a successful entry into the UK market.
1. What’s the story?
An Indian corporate and investor approached us to conduct a market opportunity assessment. The company was already in discussions around investing in the construction of a hotel and a large conference facility. Grant Thornton India, who knows the client well, got the UK strategy team connected.
2. Why were they looking at the UK in particular?
The Indian investors were originally attracted by this investment due to other connections that we are unable to disclose due to client confidentiality. In addition, they believed that as the UK and world economy exited from recession, there would be increasing demand for hotel and conference facilities in the adjacent areas.
3. What issues exist for overseas companies seeking to invest in the UK?
In this case, the issue was one of commercial due diligence/market opportunity. The Indian investors wanted to validate research that had already been sourced by the target and also wanted reassurance of their investment plans in that specific sector and region. We were therefore engaged to assess the hotels and conference markets in the region, and to review the plans and forecasts presented by the club’s management.
4. What did the market assessment involve exactly?
A few things! The Strategy and Commercial Advisory team:
- Reviewed the target company’s performance, attendance rates and revenue.
- Assessed its outlook based on future events secured by the club compared to its rivals.
- Investigated demand and supply for hotels within a 10-mile radius of the targets operations.
- Examined the historic room supply across different hotel categories, the occupancy rates and the locations of the different hotels.
- Provided a similar supply analysis for conference venues in the region.
- Looked at the macroeconomic indicators and demographics for the region and assessed the demand drivers and inhibitors.
- Provided the client with an explanation for the historic performance and an outlook regarding demand for hotel and conferences in the medium term.
- Carried out a competitor benchmarking exercise with a selected number of close rivals.
- Carefully reviewed the previous work conducted by the target’s advisers and highlighted points that needed to be revisited by our client.
5. Were there any particular challenges or complications?
The client originally thought that both the hotel and conference offerings were rather attractive. But our analysis revealed that the supply for conference venues was abundant and the weak demand drivers did not justify the set-up of a large conference venue.
Due to the nature of the work, we didn’t have the opportunity to interview industry specialists and participants to get a clearer understanding of the demand outlook for the conference market. But this type of primary research adds significant value to clients and provides greater reassurance when data is not publicly available.
6. How long did the market assessment take?
Around three weeks – including interviews, site visits and some mystery shopping across the hotels and conference rivals in the adjacent area.
7. What else does a foreign investor need to do if they decide to progress?
After conducting a market opportunity assessment and before engaging with the potential target, a Commercial Due Diligence (CDD) will cover all angles of the potential investment and provide reassurance or raise issues.
A CDD includes primary research conducted with specialists, customer referencing, mystery shopping and so on, and will cover in greater detail the upsides/downsides and, most importantly, any risks/issues that need to be addressed ahead of investment.
The company should also ensure the viability behind the historic and forecast financials of the project and also look at how to structure the deal once all reviews have been completed. (Our Transaction Advisory team would help assess viability, while Corporate Finance advisers would help with structuring, for example.)
8. What was the outcome in this case?
We submitted our final report to the client along with recommendations on the investment, the hotel and the conference facilities. The company is now in further negotiations with the target to alter some of the terms and conditions of their investment.
9. Any general advice for companies expanding into the UK?
You’ll need an understanding of the UK economy, as well as the specific region and sector you’re planning to enter. It really is critical to identify what drives or inhibits demand in your target market and also the competitive environment in the space to help you make a solid strategic decision.
10. Is there a contact for further advice in this area?
Image: (CC) Adam_T4
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