STRATEGIC DUE DILIGENCE

David Goldstein

President, Mekko Graphics

david@mekkographics.com

2

Introduction• Mekko Graphics is used by over 75% of the top 25 private equity firms as identified by Private

Equity International• It plays a critical role in all stages of the strategic due diligence process:

• Market analysis• Competitive positioning• Customer analysis• Company analysis

• Mekko Graphics supports chart types and features that are valuable for due diligence and not found in PowerPoint or Excel:

• Marimekko chart• Bar Mekko chart• Cascade, waterfall or bridge chart• Data rows, data columns and CAGR columns that align with the chart• Growth lines and comparison lines

• Mekko Graphics has over 15 years experience satisfying the charting needs of:• Strategy consultants• Private equity firms• Strategy and marketing professionals at Fortune 500 companies

3

Market AnalysisUse a Marimekko chart to map the market by industry vertical, identifying an unpenetrated market opportunity.

0

20

40

60

80

100%

Auto

Primary Player Share

Competitor Share

Unpenetrated Market

Opportunity

~$900MM

Industrial Machinery

~$600MM

Medical

~$600MM

Other

~$2.9B

Perc

ent

of

Tota

l

Total = ~$5B

Market Analysis

4

A Marimekko chart can also map the market by company size and industry vertical

0

20

40

60

80

100%

Auto

$0-50MM Companies

$50MM-1B

$1B+

~$900MM

Industrial Machinery

~$600MM

Medical

~$600MM

Other

~$2.9B Total = ~$5B

Perc

ent

of

Tota

l

Market Analysis

5

Use an area chart with a CAGR column to track market trends over time

0.0

1.0

2.0

3.0

4.0

$5.0B

Other

Medical

I ndustrialMachinery

Auto

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

5%

8%

14%

3%

Tota

l M

ark

et S

ize

($B

)

2002-2012

CAGR

4.7%Total

Market Analysis

6

Use a 100% stacked bar to identify market opportunities.

0

20

40

60

80

100%

Area of Earth

Europe

North America

Asia Pacific

Latin America

EMEA

58MM

Population

5.9B

GDP

28.4B

Restaurant Meals

14.4B

QSR Meals

4.4B

Competitive Positioning

7

This Marimekko chart presents market share by competitor and industry vertical. We use a data row to show overall competitor revenue.

0

20

40

60

80

100%

Competitor A

Automotive

Medical

Distribution/ Industrial Supplies

Industrial Machinery & Equipment

Electronics

Consumer Goods

Fabricated Metal Products

Hydraulics & Fluid Handling

Appliances & Housewares

Rubber, Paper & Plastic

All Other Industries

Competitor B

Automotive

Medical

Distribution/Industrial Supplies

Industrial Machinery &Equipment

All OtherIndustries

Competitor C

Automotive

Medical

Distribution/IndustrialSupplies

Industrial Machinery &Equipment

Hydraulics & FluidHandling

All OtherIndustries

D

Automotive

Medical

All OtherIndustries

E All Other Competitors

All Other Industries

Perc

ent

of

Tota

l

$800M $400M $300M $200M $50M $500MCompany Revenue

8

Competitive Positioning

CountryCurrent Marginal Cost: ~$80

Previous Marginal Cost: ~$50

0

20

40

60

80

$100

Vale SA

Kumba

I ron

Ore

CVG F/ O

NMDCCSN

Rio Tinto BHPB

Fortes

cue Met

als

Samarc

o

Cleve

land

Cliffs

Uni

t C

ost Chile

Canada

Sweden

USA

Brazil

SouthAfrica

Venezuela

India

Australia

Peru

Mauritania

The Bar Mekko shows competitor cost analysis. We use color coding to differentiate countries and average lines to highlight key costs.

9

Competitive PositioningThe bubble chart contrasts earning, market share and revenue for each competitor. The competitors in the shaded area are niche players with relatively high earnings.

-20

0

20

40

60%

0.01 0.02 0.05 0.1 0.2 0.5 1 2 5 10

100,000

Competitor 9

Competitor 10

Competitor 16

100,000

Competitor 1

Competitor 2

Competitor 3

Competitor 4

Competitor 5

Competitor 6

Competitor 7

Competitor 8

Competitor 11

Competitor 12

A.C.M.E.

Competitor 13Competitor 14

Competitor 15

10

Customer AnalysisThis Marimekko chart presents sales by brand and channel. You can spot opportunities for growing a specific brand in a sales channel.

0

20

40

60

80

100%

MODERN DISTRIBUTION

2,811

10027643

3,245

DISCOUNT

76

173

8260

464

86

3727

617

EXPORT

935

161168

2,066

237

3,567

TRADITIONAL

BRAND 1BRAND 2BRAND 3BRAND 4BRAND 5

11

Customer AnalysisThis Marimekko chart presents sales by customer and region.

0

20

40

60

80

100%

Revenue in $M

South

Customer1

Customer2

Customer3

others$50,764M

South -East

$20,021M

Mid-West

$42,107M

North/North East

$9,074MTotal =$121,966M

Customer Analysis

12

0%

50

60

70

80%

Total Company Profitability: 65%

Air, Lan

d an

d W

ater

Tran

spor

tatio

n

Med

ical

Elec

troni

cs a

nd E

lect

rical

Indu

stria

l Mac

hine

ry

and

Equi

pmen

tHar

dwar

e

Hydra

ulics

, Pne

umat

ic

and

Flui

d Han

dlin

g

Fabr

icate

d Met

al P

rodu

cts

Rubb

er, P

aper

&

Misc

Plast

ic Pr

oduc

ts

Applia

nces

and

Hou

sewar

es

Autom

otive

Spor

ting

Goods

, Toy

s

& Rec

reat

iona

l Equ

ipm

ent

Contr

ibuti

on M

arg

in (

%) Total Company

Profitability: 65%

A Bar Mekko is an effective way of summarizing a company’s overall profitability by breaking out its components, revenue and contribution margin in this case

0%

50

60

70

80%

0 2 4 6 8 10 12 $14K

SegmentRevenue

HydraulicsPneumaticand FluidHandling

RubberPaper &

Misc PlasticProducts

SegmentRevenue

Average Account Size ($000s)

Cu

stom

er C

on

trib

uti

on M

arg

in

Automotive

Hardware

I ndustrial Machinery and Equipment

Medical

Electronicsand Electrical

Sporting Goods, Toys &Recreational Equipment

FabricatedMetal Products

Appliances andHousewares

Air, Land and Water Transportation

Customer Analysis

13

A Bubble chart can be used to overlay two additional dimensions of information to the overall profitability.

Medical and Air, Land & Water Transportation segments display outsized margins vs. what would be expected for customers of that size

R² = 0.68

Customer Analysis

14

Use a cascade chart to track customer gains and losses.

0

10

20

30

40

50

$60M

2011

All Other

Customer1

Customer2

Customer3Customer4

$49M

Customer Gains

All Other

Customer5Customer6Customer7

$14M

Customer Losses

All Other

Customer1

Customer3Customer8

-$13M

New Product Line

All Other

Customer9

Customer10

$9M

2012

All Other

Customer1

Customer2

Customer3

Customer4

Customer9

$59M

Company Analysis

15

Add a growth line and a CAGR column to a stacked bar chart to track sales by product for the last four years.

0

20,000

40,000

60,000

2009 2010 2011

22,597

2012

CAGR +3%

30,970

19,875

1,539

52,812

33,045

20,186

1,612

55,024

32,813

2,101

57,623

31,151

24,684

2,133

58,067

CAGR +3%

0.2%

7.5%

11.5%

-38.8%

09-12CAGR

PRODUCT 1

PRODUCT 2

PRODUCT 3

PRODUCT 4

0

20

40

60

80

100%

Percent of Total

Brand 1

Operations

Marketing

Corporate Marketing

SupportCurriculum

Training

Ops Processes

CEO Office

$10,162,964

Brand 2

HQ Operations

Operations

Marketing

Corporate Marketing

Training

Training

CEO Office

$4,608,052

Development

Development

RealEstate

Sales

Construction

Design

$2,903,704

HumanResources

Recru

itin

g/

Sta

ffin

gTr

ave

l/Avia

tion

Compensation/Benefits

Fie

ldR

ecr

uit

ing

Oth

er

Adm

inS

erv

ices

Management

$2,083,092

Legal

Ris

kM

anagem

ent

Loss

Pre

vention

Contr

act

Adm

/Leg

al

Other

CEOAssistant

Inte

rnat

ional

Equip

men

t S

erv

ices

$1,641,224

Finance

Finance

Tax

Payr

oll

Tre

asury

Corp

orate

Acco

un

ting

Fran

chis

ee A

ccou

nti

ng

Business Analysis

$4,355,556

InformationTechnology

Telephony /Comm /

Web

Tech

nic

alSu

ppor

tH

elp

Des

kSoft

ware

Develo

pm

ent

P&D

Proc

ure

me

ntM

an

agem

ent

Dis

trib

uti

on

I nternati onalPurchasi ng

/ D i stri buti on

Mis

cQ

A

$1,325,604

$1,136,232

Information Technology

$2,335,588

Total =$30,552,016

Company Analysis

16

Use a Marimekko chart to break out costs by department.

17

0%

40

50

60

70

80

Total Custom57%

Medica

l

84%79%

75%

69%

54%

Automotive

Total Custom57%

Tran

spor

tatio

n

Rubber

/Pap

er/

Plas

tic P

rodu

cts

Hardw

are

Indus

t rial

Mach in

ery

E lectr

onics

0%

40

50

60

70

80%

Total Custom50%

Medica

l

70%

Appl

iance

s/Hou

sewar

es

Elec

tron

ics/E

lectri

cal Automotive

Hardw

are

58%

Fab

Metal Pr

oducts

Rubb

er/P

aper

/

Plastic

Prod

ucts

Recreational Equipment

Total Custom50%

Indu

stria

l Mac

hine

ry

Company AnalysisThe profitability of Plant 1 is higher than Plant 2 even though the automotive segment is weighing it down.

Plant 1 Profitability: 70% Plant 2

Profitability: 62%

Con

trib

utio

n M

arg

in

Con

trib

utio

n M

arg

in

Plant 1 Plant 2

By using two Bar Mekkos side by side, the profitability across two divisions of a company can be shown while retaining the relative size of each.

0%

55

60

65%

2011 Contribution

Margin

55%

Automotive

-2%

Industrial Machinery

3%

Medical

5%

All Others

4%

2012 Contribution

Margin

65%

Contr

ibuti

on M

arg

in (

%)

Company Analysis

18

The decrease in profitability among automotive customers was more than offset by the increases in industrial machinery, medical, and all others between 2011-2012.

Company Analysis

19

You can also use a cascade to estimate the overall change in equity value for the investment.

0

50

100

150

200

250

300

350$375

Equity Value Creation ($M)

Equity Value atClose

PE Firm

Mgmt

$136M

Fees & Expenses

-$14M

Debt Paydown

$108M

EBITDAImprovement

Market Growth

ShareGain

ExpenseReduction

$137M

Equity Value atExit

PE Firm

Mgmt

$367M