Background
- In 2023, a private equity firm sent us a short email, asking for a second opinion on the need for regulatory due diligence for a UK-based supply-chain compliance software company in the construction industry. Although the PE firm believed a niche company like this was unlikely to face regulatory issues, it knew our processes and global capability and followed up with Capstone to be on the safe side.
- In a Quick Read to the client, we identified several underappreciated policy angles, including an opportunity from a potential expansion of the UK’s Modern Slavery Act, which requires significant due diligence proving there was no forced labor in the supply chain of construction companies.
Process
- The PE firm engaged Capstone for a regulatory due diligence project. We contacted 20 current and former policymakers in France, Brussels, and other European Union Member States to supplement our analysis of raw data, assess the regulatory landscape, and provide an overview of potential market impacts.
- Over three weeks, we determined that the recently enacted Modern Slavery Act would create a major new demand driver in an untapped market for the company, which promoted efficiency and sustainability.
- In our final presentation to the PE firm’s Investment Committee, we predicted that the company would expand its serviceable addressable market, enable substantial revenue-per-client increases in France; and provide a strong tailwind for geographic expansion across Europe.
Outcomes
- Our client had a significant analytical advantage in the process as neither the company nor the bankers, which had a significant analytical advantage over others in this process, highlighted this opportunity.
- As a result, the PE firm was able to successfully complete its acquisition of the supply-chain compliance software company a few months later.
- The EU implemented the policy as we predicted, establishing a widespread regulatory regime that prohibits any products made using forced labor from being sold in the EU market.
Contact Us. We Can Help.
We would be happy to schedule a Quick Read—a free thirty-minute call with one of our expert teams—to discuss the regulatory risks and opportunities that impact your company’s decisions and to consider how we can best help you develop strategies to prepare for the future.
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