- Service:Commercial due diligence (CDD)
- Sector:Support services
Issue
The target was an Eastern European provider of consumer finance. AMR’s client wanted to know whether the historic strong loan book growth and attractive net interest margin were sustainable. Separately, the client was seeking reassurance from AMR on the target’s reputation and business conduct before it would advance in the auction process.
Approach
AMR provided detailed forecasts for the consumer lending business, scrutinising each of the market and business drivers for the loan portfolio. Amongst other things, AMR looked at key market drivers such as bank account penetration, forecast growth in spend on consumer durables, GDP growth and employment, as well as business drivers including market share, customer numbers, loans per customer and average loan values. AMR also modelled interest rate projections for each loan class, using benchmark data to show that APRs would decline. Separately, AMR conducted a mystery shopping exercise on the ground to gain comfort on the key reputational risks – misleading or aggressive sales techniques, poor customer service, unfair terms of trade etc. AMR also conducted a press search and internet search (blogs, forums) to check for negative publicity on the target.
Recommendations
AMR was able to produce detailed forecasts by business line, justified by extensive secondary research, to enable our client to construct a credible investment case. AMR also confirmed that the target enjoyed a positive reputation in the market.
Result
On the basis of the comprehensive research and analysis provided, AMR’s client could justify a full bid to enable it to proceed to the next round of the auction process.
Insight from AMR’s research
Careful attention needs to be paid to the data to understand how different financial services markets in Central and Eastern Europe will develop. For example, the Accession Countries (Bulgaria and Romania) have low bank account penetration compared to the CE3 (Poland, Hungary, Czech Republic), but similar or higher levels of unsecured consumer credit.