Industry Analysis - Framework

Question 1

Our client is thinking of acquiring a diversified company that has holdings in three different industries. One of those industries is entertainment. Our client knows nothing about the entertainment industry and has asked us to do an analysis. What do we analyze?

How do you approach this problem?

Answer 1

1. Investigate the industry overall
2. Understand the suppliers position
3. What is the future outlook for the industry?

Question 2

What questions do you ask to investigate the industry? (7)

Answer 2

1. Where is it in its life cycle (emerging, maturing, declining)
2. How has the industry been performing (growing or declining) over the last one, two, five, and 10 years?
3. How have we been doing compared to the industry?
4. Who are the major players and what kind of market share does each have? Who has the rest?
5. Has the industry seen any major changes lately? These include new players, new technology and increased regulation.
6. What drives the industry? Brand, products, size or technology?
7. Profitability. What are the margins?

Question 3

What questions do you ask to understand the suppliers’ position? (3)

Answer 3

1. Have the suppliers been consistent?
2. What is going on in their industries?
3. Will they continue to supply us?

Question 4

What questions do you ask to understand the future outlook for the industry?

Answer 4

1. Are players coming into or leaving the industry?
2. Have there been many mergers or acquisitions lately?
3. What are the barriers to entry and/or to exit?
4. Will substitutes be introduced?