Background:
A US private equity firm was purchasing a US company which had 5 primary suppliers in Asia. These vendors had been supplying products to the US company for over 3 years. The company had a long-standing relationship with these suppliers, after having originally met them at international trade shows and association conferences.
Challenge:
The equity firm only knew these Chinese firms were long-standing suppliers. However, they did not have any business intelligence information on the suppliers to know who owned the companies, whether interlocking relationships existed with other Chinese or Asian firms, their financial situation and other key information which could affect these suppliers and their sourcing arrangements with the US company.
For example, the equity firm was concerned these suppliers had interlocking business relationships with one another or other companies which produced similar products. If these relationships existed, the Asian suppliers would likely be collaborating with one another on price quotes to the US supplier or sharing the US company's purchasing information.
Solution:
East West recommended and performed the following approach:
- East West conducted a 'Company Profile' on each of the 5 Asian vendors. These Profile investigations included a determination of their:
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Financial situation
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Ownership of the company and senior management
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Organizational structures of management and shareholders
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Affiliated and related companies
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Description of major product and services
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Actual production capacity for the product sectors
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Annual revenue figures (Balance sheet, income statements, Debt to Asset ratios as compared to the industry average in China, and Gross Revenue)
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Major competitors
- Based on the findings of the 'Company Profiles', the equity firm learned that 3 of the suppliers were independent companies with no affiliated or interlocking business relationships with the other suppliers. However, the Profile revealed the remaining 2 suppliers were not Chinese, but rather were Taiwanese firms. After further investigation, it was determined these 2 Taiwanese suppliers were actually owned by the same Taiwanese family who controlled these companies through a series of shell companies.
Result: Armed with the Company Profile findings, the equity firm decided to identify alternative vendors in Asia and engaged East West to complete this vendor selection. East West conducted investigations on the selected suppliers to ensure they did not have outstanding business relationships or ownership issues which would affect their ability to supply the US company.
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