Move guide

Define the target

Your report suggested a move on at least one of these three questions:

what the target's business really is, and what it sells;
where it plays, by geography, segment and channel;
how it actually makes money.

This move guide writes the target's definition in one sentence, from its own transaction data. It maps where its revenue and profit come from. Then it lays out how it makes money, down to the product, the channel and the customer.

1. When it applies

Use this move guide if your report placed any of these three questions at "Red flag" or "Doubtful".

Question	Where it may sit today	Where this move guide aims
What is the target's business, really, and what does it sell?	Red flag: "Nobody can say what the target is or sells in one sentence, and the IM describes it in several different ways." Doubtful: "The definition is the seller's flattering one, “platform”, “solutions”, the product list is a catalogue, and its place in the value chain is fudged."	Supported: "Defined by what it sells, what customers buy it for, whom it competes with and where it sits in the value chain, and it holds up outside-in."
Where does the target play (geographies, segments, channels)?	Red flag: "It plays everywhere and nowhere: a scatter of geographies, segments and channels with no core." Doubtful: "Geographies and segments are the IM's categories; nobody knows where the profit sits or which channels carry it."	Supported: "Participation mapped by geography, segment and channel, with revenue and profit attached to each."
How does the target actually make money?	Red flag: "The economic model doesn't work: profit depends on a subsidy, an anomaly, the cycle, or a few customers, and one unit quietly funds the rest." Doubtful: "The model is described in slogans; unit, channel and customer economics have never been laid out."	Supported: "Economics clear at unit, channel and customer level, with cross-subsidies, concentration and portfolio synergies made explicit."

If all three already sit at "Supported" or higher, skip this move guide.

It comes first. Every later test of the target needs this definition.

2. What to do

Four steps. They take two to three weeks.

Write the definition in one sentence, from the target's transaction data. The information memorandum is the seller's version. Say what it sells, to whom, and where it sits in the value chain.
Test the definition on two customers and one person who watches its competitors. Rewrite it until they recognise it.
Map revenue and profit by geography, segment and channel from the ledger. Mark where the core is, and what the rest costs.
Lay out the economics by product, channel and customer. Name every cross-subsidy and every customer above a tenth of revenue.

Table A below holds all three on one page.

3. What to produce

One table.

Table A. The target on one page

Item	What we found	Source
The definition, in one sentence		Transaction data
What customers and a competitor-watcher said		Three conversations
The core: geography, segment and channel		Ledger
Revenue and profit outside the core		Ledger
Cross-subsidies		Product and customer economics
Customers above a tenth of revenue		Ledger

A definition the customers would not recognise is the seller's.

4. A worked example

Illustrative. Written for this move guide. It describes no client.

A packaging group is looking at a maker of food-grade containers. The information memorandum calls it a "sustainable packaging solutions platform".

The definition.

From its invoices, the target makes moulded containers for dairy and meal-kit companies, from two plants. Two customers and a competitor-watcher agreed with that sentence.

The map.

Nine-tenths of its profit comes from one country and one channel: direct supply to food makers. Its small retail range loses money.

The economics.

Its two largest customers each take over a tenth of revenue. Their prices are below average, and the smaller customers fund them.

Three weeks on.

Three weeks on Illustrative

1 sentence that customers recognise
1 core country and channel, carrying most of the profit
2 customers above a tenth of revenue, named

On a retake, all three questions could be answered at "Supported".

What it looked like in our work

From our own work. Figures changed.

For a buyer of a building-products manufacturer, our due diligence laid out revenue and margin product by product. A small part of the range carried almost all of the business. The best sellers earned less than the rest.

Where the money came from, product by product Figures changed

91% of revenue from the top fifth of products
24% of revenue from the four best sellers, at a below-average margin
Up to 15 points more gross margin on the slower sellers

Product group	Share of the top fifth's revenue (%)	Gross margin, top fifth (%)	Gross margin, the rest (%)
Group A	44	54	55
Group B	33	42	46
Other	23	57	72

The four best sellers sat in groups A and B. The high-volume lines priced for share, and the long tail priced for margin. A buyer planning to cut the range had to know which was which.

5. Effort and dependencies

Who

Deal leadWrites the definition and tests it outside-in.
AnalystBuilds the map and the economics from the ledger.
Target's finance teamSupplies the transaction data by product, channel and customer.

What you need

The target's transaction data, by product, customer and channel.
Two customers and one competitor-watcher willing to talk.

How long

Two to three weeks.

What gets in the way. We have seen this in our own work:

Margin set by the contract. In an outsourced services business, margin followed how each contract was built, more than the service it sold. The largest client sat well down the margin ranking on old pricing.

6. How will you know it worked?

The test is whether the definition and the economics hold up outside the seller's documents. Retake the check when Table A is full. Each of these should be true when you answer:

Question	You can answer Supported when	A document alone does not count if
What is the target's business, really, and what does it sell?	One sentence says what it sells, to whom and where it sits, and outsiders recognise it.	The sentence comes from the information memorandum.
Where does the target play (geographies, segments, channels)?	Revenue and profit are mapped by geography, segment and channel.	The map uses the seller's categories, with no profit attached.
How does the target actually make money?	The economics are laid out by product, channel and customer, with every cross-subsidy named.	The model is described, but nobody has built it from the data.

The worked example is illustrative.

Start the check

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