Our company, Horizon Biz Consultancy, was appointed by the buyer (Party B) to execute Due Diligence on a Sports Facility focused on Padel sports located in Dubai, UAE.
The purpose of Due Diligence is to understand the current financial position, evaluate the company’s financial sustainability, and identify any unusual matter that needs to be considered before the deal is executed. I took the lead in executing the assignment.
I had a discussion with the CFO of Party B. He requested me to be vigilant about the whole process, as he was sensing that the picture portrayed about the business by the seller, being optimistic, may not be fair and true.
I also had a meeting with the seller (Party A). I tried to understand (a)the business model, (b) avenues of revenue, (c)operational expenses, and (d)occupancy at which the business was operating, and finally asked the reason for selling the business. He informed me that the only reason was to focus on their other businesses, focusing on a shift in risk strategy.
As I started understanding the business in more detail, I focused on its significant revenue. The core revenue is from renting Padel Courts and Coaching at the Padel Courts.
The facility was operational for 14 hours per day, from 9 AM to 11 PM. Considering the overall occupancy, we could observe that the facility occupancy rate was only 16%, which was normal and acceptable to the management of Party A.
To understand more about the sports facility’s market standards and customer requirements, I did market research by compiling the latest reports on sports in the UAE and the GCC region.
I gathered information about other sports facilities by calling them to learn about their pricing, timing, facilities provided, and benefits covered.
I even visited a few sports facilities and tried to collect more information about their;
- Operations
- Occupancy
- Source of bookings
- Cancellation rate
- Facilities for corporate events,
- Collaborations with other sports facilities
- Sponsorship charges,
- Number of Tournaments hosted during the year
- cafeteria services
With the above details, I discovered that the sports facility’s average occupancy is around 40%- 50%, which is materially high compared to our facility’s rate, along with revenues from hosting events and tournaments, sponsorships, food, and cafeteria.
To understand the reason for low occupancy in more detail, I investigated a bit further.
- I interacted with the booking and front desk team. According to them, customer retention is very low, probably because of poor service quality.
- Reviewed the Google reviews made by customers, which were not impressive
- Pricing was high in comparison to other facility
- Non-membership plan or lack of collaboration with other facilities
- Poor traction on Online marketing and social media.
- Less working hours couldn’t attract players in the early morning
We summarised the above points, which indicated operational inefficiency, and provided the buyer with a point of discussion to conclude their conversation and negotiation ahead.
