Case Study

Operational Due Diligence in the Construction Sector

Goals: evaluate operational efficiency, financial sustainability, and competitiveness to support investment decision-making

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Context and project objective

A construction company was undergoing an evaluation process for a potential acquisition to expand its operations and strengthen its competitive position in the market. The Kaizen Institute conducted an operational due diligence to support this investment decision. The analysis aimed to provide strategic insights by assessing operational efficiency, financial sustainability, and industry competitiveness.

Challenges and identified needs

The main challenge of this project was to provide a comprehensive and integrated view of the target company’s financial and operational activities, enabling the potential investor to:

• Understand the operations by thoroughly analyzing processes, costs, and resources.
• Identify operational risks and opportunities for improvement within the target company.
• Assess financial sustainability based on key indicators such as EBITDA, COGS, OPEX, and trends in construction costs.
• Gain strategic insights to support well-informed investment decisions.

In summary, the goal was to deliver a thorough analysis addressing financial performance, the company’s competitiveness, and operational sustainability, ensuring alignment with the investor’s strategic objectives.

Approach strategy and conducted analyses

The approach followed a structured methodology to assess operational efficiency, financial sustainability, and competitiveness in the construction sector. This included the following analyses:

• Business overview: Revenue, cost structure, EBITDA, revenue trends, and key conclusions.
• Overall operational analysis: Organizational structure, process flows, project analysis, margins, deadlines, billing, and identified critical points.
• Labor costs: Expenses, headcount trends, productivity, costs by function, and strategic implications.
• SES & COGS: Procurement impact, cost breakdown by category, key suppliers, and critical observations.
• Detailed budgeting: Margins by phase, internal labor costs, value comparisons, and key findings.
• Rebudgeting analysis: Cost variations, initial budgeting and rebudgeting differences, and conclusions.
• Planning and procurement: Supplier performance, costs and margins, recommendations, and key observations.
• Additional work, errors, and omissions: Identification, financial impact, and mitigation strategies.
• Overall conclusions: Summary, strategic recommendations, risks, and final insights.

The in-depth operational due diligence comprehensively assessed the target company’s operational efficiency, financial sustainability, and competitiveness in the construction sector. The analyses delivered valuable strategic insights into potential improvements and risks, supporting the investor in making informed and strategic decisions.

Kaizen Institute’s analyses are always tailored to the specific industry characteristics under review and the strategic needs of the organization requesting the evaluation. In the construction sector, key considerations included cost management complexity, sensitivity to raw material price fluctuations, and supplier management challenges, among others.

To ensure a thorough and accurate analysis, Kaizen Institute employs a top-down and bottom-up approach, integrating quantitative data with qualitative insights. This methodology provides a balanced and comprehensive view of operations and financial performance while maintaining strict confidentiality throughout the process.

We are committed to respecting our clients’ confidentiality. While we have altered or omitted their names, the results are genuine.