RealDeals' Q&A with Lushani Kodituwakku, Managing Director, Luminii Consulting

Luminii Consulting managing director Lushani Kodituwakku discusses how CDD has changed in the current environment and why it is now ranking as a top priority for managers performing DD on targets.

What key areas do you consider when performing Commercial Due Diligence (CDD)?

There are many areas we consider, and often depends on the target and the market in which it operates, answering a range of questions that address investors’ key concerns and provide comfort around the ability to generate sustainable value from the investment. One key area is market sizing and trends impacting market growth. Another key area is the competitive benchmarking and analysis of the customers by undertaking detailed customer referencing to gauge satisfaction and future spend, where most valuable insight is gained. We also analyse the business model and assess its appropriateness in light of disruptive market challenges or competitive threats. This is an aspect that is becoming more and more important in CDDs, with seismic shifts such as digital transformations, Brexit and now the coronavirus pandemic.

Finally, we review business plans, assessing if top-line growth forecasts are overly ambitious or if key cost elements have been tested against achievable benchmarks. We also provide actionable strategic recommendations considering the key levers of post-deal value creation. Again, this is something that is valuable to investors and management teams and feeds into their 100-day plans.

What has your PE pipeline been like so far this year?

Q1 has been extremely strong, we have seen a marked increase on 2019 in terms of PE opportunities, with interest from UK, European and North American houses and have worked on 9 deals. As soon as the lockdown came into force, a few of the proposals which were likely to convert have been mothballed or in industries which have had a direct impact from Covid fell through. We anticipated a bigger impact from Covid-19, but it has stayed positive so far. The reason is probably twofold; Luminii has built a strong reputation within the tech sector, so we continue to see leads coming in, especially for CDD on SaaS firms.

We have also had increasing demand for strategy projects from corporates and portfolio companies to undertake growth strategy work, some undertaking market opportunity assessments, business model reconfigurations, preparation for exit etc. For many portfolio assets this is a good time to look at the external market dynamics and then look internally to do to adapt to market dynamics and grow both top line and bottom line.

What are investors focusing their time on now?

It’s a real dilemma for investors. On the one hand, they are focused on making sure that the financial health of their portfolio companies is protected, and how they can optimise the business model to be more resilient. But, at the same time, investors have large pools of capital to deploy. Investors are looking for businesses within sectors that are resilient to the Covid-19 climate. Assets in the TMT/software and healthcare sectors are quite buoyant now. We are currently working on projects in data analytics, billing and management platforms, CRM, SEO, IT services and Cybersecurity.

What questions should PE managers be asking when performing CDD now?

Regardless of the sector that they plan to invest in, PE houses must take a view on what the business implications are from Covid-19. Therefore, we work with our clients and management teams on a range of scenarios and aim to provide some clarity on whether a business can continue to operate safely, can survive short-term and how easily it will be able to revert to normality post-lockdown. The second question to address is how businesses are responding to changing customer needs in a pandemic and finally whether digital transformation can improve long-term sustainability.

As the current pandemic has shown, beyond the immediate health crisis, the economy and world of business must operate in completely uncharted territory. They need a resilient strategy and business model in an unstable world of shifting conditions. Therefore, the focus of due diligence will shift towards assessing whether the business model gives a company agility to adapt to change and resilience to seismic shocks.

How will this current environment change due diligence in the long term?

I have provided CDD for 21 years and I remember when clients would do light-touch CDD on the back of FDD; it wasn’t a priority. In recent years, CDD has become a prerequisite for any transaction. In the last 3 months, however, I have started hearing from clients that they would like to kick off CDD first, a few weeks ahead of other due diligence streams. It makes sense to firstly obtain an understanding of what is happening in the market before committing resources to a deal process. I think this will continue long-term.

About Luminii Consulting

Luminii Consulting is a consulting firm specialising in Commercial Due Diligence and Growth Strategy. It provides corporates, private equity and their portfolio companies with strategic advice and pragmatic solutions to grow their business, make well-informed investment decisions and manage risk. Luminii has extensive experience within the technology, media, telecoms, retail/e-commerce, B2B products & services and healthcare sectors.

Find out more and get in contact via www.luminiiconsulting.com or email Lushani on This email address is being protected from spambots. You need JavaScript enabled to view it.