Use case - S - D'Ornano + Co

Objective

New Investment

Investment stage

Growth

New Business model

DTC Brands

Case Study

D’ORNANO + CO. PERFORMED HYBRID GROWTH DILIGENCE ON A LEADING DTC BRAND IN SUSTAINABLE FASHION

The investor wanted to complete a Growth investment in a leading Fashion DTC Brand which had benefited from strong commercial traction since inception. The brand had established a strong identity online but had also moved into physical retail, including shops overseas. It also had successfully defined itself by its adoption of sustainability goals. At the time of the investment, the company wanted to expand its geographical footprint in the US.

Challenge

While the brand had a strong following among interesting demographics, fashion trends are notoriously fast-moving. The resilience of its model had to be confirmed, and notably the stickiness of its client base. Staying ahead of tastes and trends requires constant updating and expansion of fashion brands, but also the ability master existing and emerging social media channels to reach consumers who want to feel deeply connected to brands. At the same time, brands that have aligned with sustainability and impact are tapping into an important mega-trend as consumers increasingly consider social responsibility in their buying decisions. Traditional due diligence is backward-looking and, for High-growth and Disruptive companies, does not provide comfort on a company’s ability to deliver sustainable growth and create value. Also, because traditional due diligence takes a broader industry approach rather than a more precise business model approach, it can only generate a surface-level view of a company’s financial health with a limited picture of an asset’s strengths and weaknesses to consider in the investment process.

Solution

The investor retained D’Ornano + Co. to apply its Hybrid Growth Diligence for PE Growth product, on financial, legal and tax aspects, in order to identify in a short timeframe any deal-breaking items, secures key aggregates, challenges the existence of a clear path to profitability if not yet achieved, and provide actionable analytical insight to support the investor’s decision. Going beyond classic due diligence, the firm’s HGD methodology layers Financial, Legal and ESG diligence on top of preliminary business model analysis and incorporates operational data mirroring the company’s economics in the assessment performed. The result is an in-depth analysis performed in record time to satisfy the expectations of an investor assessing a high-growth + disruptive asset in the context of a Growth round.

Mission outcome & key client impact

By using the Hybrid Growth Diligence approach, we helped assess the intrinsic value and confirm the resilience of the target’s business model by testing:

Its ability to maintain a high-growth rate in a macro-economic context where inflation can reduce buyer’s consumption impulse in consumer discretionary;
The dynamics of its existing customer base, pursuing cohort analysis, to understand customer loyalty according to whether they belong to historical or recent pool of consumers;
The efficiency of its S&M spend on acquiring new customers, notably through analysis of LTV/CAC ratio calculation, as well as the rationale of the customer acquisition metrics forecasted in the business plan in countries where future expansion relies heavily on;
Its hedging against the inflationary risk of raw material and transport costs, as well as its dependence on a limited number of key suppliers.

In validating the target’s ability to grow at scale and its level of profitability, we helped our client confirm its investment thesis.

New Business Model

+ Vertical

DTC Brands companies are those that sell directly to the end customer instead of relying on middlemen like classic retailers. These companies face huge challenges in finding a path to profitability in light of soaring acquisition costs. D’Ornano + Co. has historically conducted multiple DTC Brands assignments for global investors.