CASE STUDY
Assessing M&A Risks
Industry
— Retail
— Consumer Finance
Duration
— 2 Weeks
Team
— 1 Vice President
— 1 Managing Director
Services
— FDD
— Capital structure & liquidity analysis
— Quarterly CF
Assessing M&A Risks and Synergies Before Investing in Debt
A $2.5 billion revenue distributor of residential and commercial roofing materials, siding, waterproofing, and windows was financing the acquisition of a $1.2 billion revenue competitor. The combined company, with a 16% market share, would become the second-largest player in the North American roofing distribution market, surpassing its closest competitor by $1 billion in revenue. The client needed a comprehensive due diligence process to assess integration risks, cost synergies, and market dynamics before proceeding to invest in the acquisition financing. Our team was engaged to evaluate the risks, financial impact, and operational efficiencies expected from the transaction.
The Execution
Our due diligence approach focused on integration feasibility, financial impact, and market outlook, including:
Integration Risk Assessment – Evaluated potential supply chain disruptions, IT and systems integration risks, logistics and distribution challenges, and regulatory compliance issues to ensure a smooth transition post-merger.
Cost Savings & Synergy Opportunities – Reviewed potential purchasing synergies, warehouse consolidation, improved fleet logistics, and headcount reductions to quantify operational efficiencies and cost savings.
Customer Creditworthiness: Assessed subprime customer repayment ability across different economic cycles, factoring in potential wage inflation and employment shifts.
Cash Cost Analysis for Synergies – Assessed the one-time costs required to achieve projected synergies, including facility closures, workforce reductions, ERP and software integrations, rebranding expenses, and IT upgrades.
Raw Material Price Sensitivity – Analyzed the impact of rising oil prices on asphalt and its subsequent effect on roofing material costs. Conducted a sensitivity analysis on how fluctuations in material prices could affect customer purchasing behavior.
Market Demand & Growth Drivers – Reviewed housing market trends, average home and roof age, storm activity, and new construction growth to determine long-term demand for roofing products.
Market Demand & Growth Drivers – Reviewed housing market trends, average home and roof age, storm activity, and new construction growth to determine long-term demand for roofing products.
The Results
The due diligence process confirmed the attractiveness of the acquisition, highlighting stable cash flow driven by non-discretionary spending on roofing materials. Cost savings opportunities were assessed as low risk, with purchasing synergies achievable in the near term. Integration risks were deemed manageable due to improved geographic diversification and limited overlap in operations. Free cash flow generation was projected to be strong, given low capital expenditure requirements. Our analysis provided the client with the confidence needed to proceed with financing the transaction, positioning them for attractive returns on their debt investment.
