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The Journal of Private Equity

The Journal of Private Equity

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Primary Article

Fast-Track Profit Models

More Powerful Due-Diligence Process for Mergers and Acquisitions

Steven Anderson, Kevin. Prokop and Robert S. Kalpan
The Journal of Private Equity Summer 2007, 10 (3) 22-34; DOI: https://doi.org/10.3905/jpe.2007.686427
Steven Anderson
The chairman and founder of Acorn Systems in Houston, TX.
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  • For correspondence: sanderson@acornsys.com
Kevin. Prokop
A director with Questor in Southfield, MI.
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  • For correspondence: kprokop@questorfund.com
Robert S. Kalpan
Baker Foundation professor at Harvard Business School and director, Acorn Systems in Houston, TX.
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  • For correspondence: rkaplan@hbs.edu
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Abstract

The authors propose the new approach to due diligence that employs sophisticated business modeling to identify profit opportunities in advance of an acquisition. They call it Fast-Track Profit Models, which leverages advances in process models and costing. Today, industry process templates can be customized to simulate actual operations of a prospective acquisition. Transaction data from the prospect can be run through this model to provide valuable and accurate insight into business profitability and performance across the enterprise. Specific opportunities and risks can be more rigorously identified. Synergies can also be quantified. The purpose of this article is to add a new tool that focuses on the specific opportunities to boost the profitability of the company. Through the new Fast-Track Profit Models, buyers can enjoy more accurate profitability, cost, and capacity utilization across the enterprise in days instead of months. These models highlight which specific customers, sales representatives, contracts, products, services and vendors are undermining profitability, and which changes can be made to enhance profits. This can be used for valuation, post-merger management, problem identification, exit strategies, and fundraising. In this article, the author will explain how this new tool works, demonstrate its success, and discuss its potential usage for would be acquirers, whether they be industry insiders or financial outsiders.

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The Journal of Private Equity
Vol. 10, Issue 3
Summer 2007
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Fast-Track Profit Models
Steven Anderson, Kevin. Prokop, Robert S. Kalpan
The Journal of Private Equity May 2007, 10 (3) 22-34; DOI: 10.3905/jpe.2007.686427

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Fast-Track Profit Models
Steven Anderson, Kevin. Prokop, Robert S. Kalpan
The Journal of Private Equity May 2007, 10 (3) 22-34; DOI: 10.3905/jpe.2007.686427
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