Terrorism, Pakistan and Complexity

Indians will remember 26th November 2008 for next many years for obvious reasons. At least right now I can write “for obvious reasons”, as Indians (I don’t know much about other nationalities) don’t remember bad things long. Although it’s a different issue that their memory for good events are even shorter. For example, if I ask weren’t 30th January 1948 or 13th April 1919 more important, many Indians would find themselves puzzled. If we think the dates are too archaic to remember, can we guess why 22nd October 2008 is so significant. I bet most of us would not be able to answer with confidence.

All of us have been witnessing the media frenzy, mass hysteria and roaring slogans since 26th November 2008. This massacre took many lives, affected even more families and left an indelible remark on the minds of some Indians. The point of concern is not the cost but cost of bringing a mechanism which would avoid further such tragedy. However, there are things which we must think and analyze while we take next steps. I know, I can talk like this because I am not a direct sufferer; however I believe all of us have had our share of sufferings at some point of time in our life without exception.

There are many problems in the world and all of these are important. Every time someone raises an issue general mass backed up by media or vice versa demand solution. We always say that we know the problem well enough, provide us with practical workable solution. In most of the cases, it is true also. However, the point is if do we really understand the problem or it is just that we perceive that we understand it. In general, problems get manifested in some acts, impact or influence and it is these manifestations that we understand not the problem per se. Many people would not agree to it and they have valid reasons for the same. I don’t disagree either. There are people who understand but there are many more who perceive that they understand.

On the issue of Mumbai terror attack, the jury is out. Entire media and so called exerts claim to have identified the problem. Pakistan is the root cause so fix Pakistan and all other related issues will be sorted out. Public protests fueled by electronic media activism are saying “enough is enough” and they need concrete action. Politicians are under pressure to do something and so they are doing “something”. India went to the UNSC for ban on a group in Pakistan and they got it! Is everything so simple and straight? Do we really understand the complexity of the issue?

There is no doubt that lives are precious and people must feel safe and secure, but do we really know why we are unsafe? Wasn’t the attack in Mumbai (I hate using attack on Mumbai) the manifestation of the problems like all earlier attacks? I have been listening to the debates and opinion of the public, the high profile dignitaries, the ministers and the experts and it seems that fixing Pakistan would provide a panacea to this problem of terrorism at least in India. This time the United States, the UK and almost all western countries are with us. They all are asking Pakistan to act and this provides vindication to what we have been telling to the world for more than a decade! But why suddenly so much sympathy or support for India? Were lives in Mumbai so close to the heart of the US, the UK and other western countries? Is it because for the first time their citizens were targeted outside their home countries with such sophistication? There is no clear answer, at least I don’t know.

To know all this probably we will have to look into Pakistan. On the one hand, India says that civilian government in Pakistan has no real power, ISI is not under the civilian government, on the other hand we demand strong action against terrorist establishments in Pakistan from the civilian government. We say, these terrorists have supports from Pakistani military establishments, and the civilian government has no control over military establishment, then how come failure on the part of civilian government provides us with enough legitimacy to take action against Pakistan. And, the most interesting and noticeable point is the fact that the US shares our views on this. The point that haunts is, is this our view or the US’s view, and we are just a medium of expression. Some analysts say, any tension between India and Pakistan will weaken the civilian government in Pakistan and strengthen military establishment and extremist groups, which would turn out to be even bigger problem for India in the long run. Also, any real, potential or perceived problem on military front in Pakistan will jeopardize the anti Taliban movement on Afgan border. The point is, does not the US know all these equations. If they know, which everyone knows, they know, why they are allowing this tension to grow so far. Why the approach is so different than what it was in 2002 when the Indian Parliament was attacked. If we observe the recent developments, the US has given enough legitimacy to India to take any action by saying 26/11 been India’s 9/11. We all know, the United States can force the civilian government in Pakistan at the same time it has enough clutches in hand to make Pakistani military or even ISI to act. Can’t US influence IMF, can’t US stop arms supply to Pakistan. Can’t it take any action in the name of international threat if Pakistan’s nuclear capability goes in the wrong hand? I believe all of these are possible and part of several viable options. However, the approach is very different this time.

There are another aspect also, the Arab world have sympathy for Pakistan. In the Arab world (barring few countries) the jury has given verdict that the US, the UK, Israel and India (!) were responsible for the Mumbai attack. Many would find it difficult to digest that the US would annoy its allies in the Arab world at this juncture, when they are planning to leave Iraq at the earliest and that also for a reason which directly has no relation with American war in Afghanistan rather would be detrimental to their efforts in Afghanistan.

I believe the issue is not as simple and straight as we think. There is something serious and deeper inside. If we look at American diplomacy and historical records, they have not shown real friendship (here I mean long term) to any country except Israel, which is like a younger brother to the US, not even to the United Kingdom. If ever they have supported a country, there always have been strong American interests in the back. I strongly believe, America is not doing all this favor just for the sake of its words on global war against terror. American just can’t do it. The timing is another factor to look at; Obama will be taking over next month who has said that Al Qaeda will be the priority!

It seems that, America wants the civilian government to fail in Pakistan. This time they want this to be proven on factual ground and nothing can be better than the case at hand “Mumbai attack”, where a terrorist is still alive! The US know the public sentiment in India, the government is under tremendous pressure to act, act against Pakistan. Any other terrorist activity at this point would seal the fate of all major political parties in India, yes not just the Congress. Indian government knows another terror activity- major or minor- would happen, certainly happen and they want to act before that. They have already taken popular decisions at home by introducing new bills in the parliament, which got support from opposition parties. India has started showing its teeth and this time they threaten to bite. They have enough liberty both at home and from international community which factually have become just the United States. But, the point is, don’t Indian think tanks know the consequences of any military strike. Yes, they do know but there are larger things at stake. The US will allow this tension to grow at a point where, the civilian government would be declared ineffective and military takes over citing national security as a reason. However, this time it would not be a coup like it happened during Nawaz Sharif. America can’t repeat the mistake of allowing any strong man to take charge in Pakistan. This time it would be puppet, backed by the US government, which would allow full fledged American military operation inside Pakistan. America has learnt over last few years, “if you have to catch Saddam, you have to enter into Iraq”. But the question is what India will get out all these. Remember it’s the question which happens to be complicated not the answer. For India, anyone who can control Pakistani military and ISI would be better and they know no one except the US can do this.

The whole scenario might be even more complicated. But that just brings another point; let’s think well before giving verdict. I am not making any point for war or against war. The point that I am trying to drive at is things are not as simple as it seems. No matter what let’s take an informed and well calculated and prepared decision and for this there is nothing new to discover, we should just remember what has happened in the past. That would provide us with enough jurisprudence and ideas to form an opinion and arrive at a conclusion.

Feedback welcomed.

Indo US Nuclear Deal – Domestic Implications; Hurry up Congress

Indo US Nuclear Deal – Domestic Implications; Hurry up Congress

The India-US civil nuclear deal is finally close to completion with the US Senate giving a resounding 86-13 approval to the historic agreement. The deal was already passed by the House of Representative last week with a decisive margin. This brings a technical end to the process that had started on 18th July 2005, when The Indian prime minister and U.S. President announced an agreement opening up new avenues for bilateral activities and commerce in space, civil nuclear energy, and dual-use technology.

The deal also 123 agreement has been a subject to constant scrutiny by analysts, all out criticism by deal opponents and open praise by supporters. Probably the first time in the history of Independent India a government decision with regard to the foreign policy has been discussed and debated so much inside country (Panchsheel agreement can be an exception). It is not that before 123 agreement foreign policies were not debated and discussed but it always remained in the ambit of intellectuals, bureaucrats, government officials, political parties and over and above this, the debate and discussion on such policies hardly ever crossed the boundaries of big cities in India. Thanks to hyper active Indian media, electronic in particular, political parties specifically CPI and CPM and growing awareness of Indian middle class that the issue was debated on village tea stalls, small gatherings in towns, cabs of IT and non- IT companies in big cities apart from the usual places of discussion. Once my cab driver asked me “sir ye nuclear deal ka kya chakkar hai, ye government sahi nahi kar rahi hai lagta hai”! He was reading the news related to nuclear deal in a local Kannada news paper. I don’t say everyone has done that but certainly, and we don’t need statistics for that, there are many who have followed and discussed this. The most important part is that they are the genuine stakeholders who will be affected in the end.

I am not discussing the merit or demerit of this agreement, the point I am trying to make is, this deal will have long lasting and strategic impact not only on the International politics and India’s foreign policy but also the way these issues are understood and considered in the context of Indian democracy and vote bank politics where majority is still incapable of understanding even very basic implications of this deal.

The regional press and electronic media have given ample space and time to this issue to get it noticed by India’s more than one billion population. This issue is certainly not as big as higher inflation, terrorism and religious fundamentalism when considered as a parameter on the basis of which these people are going to vote in the coming election but will certainly act as a strong catalyst in deciding the final outcome. The reason for this is not the fact that this deal is very important and it has far reaching implications on India and Indian nationals, but the sheer form in which it has reached the masses. The way it has been presented and construed by the majority is completely different from what it originally stands for.

This can be a perfect example of, if analyzed properly by some able analysts, hazard of unregulated proliferation of mass media. As a result of uninformed commentators, news reporters, specifically related to these so called news channels, so called writers -ever ready to comment on everything, have spoiled the very spirit this India- US civil nuclear deal should have been analyzed in. It has been distorted and misrepresented in such a way that it has become an issue of jingoist vs anti nationals, capitalist vs communist, US vs Iran and much more something like these. Muslims (not all) are in opposition because the other party in the deal is the US and the US is considered anti Islam. Some Hindus are in favor of deal because Muslims are in opposition. Once a person told me that this deal was being signed because Sonia Gandhi was not an Indian! A section is supporting the deal because this will make India a superpower and one is opposing it because this will be the breach of trust with Iran. Brajesh Mishra, former national security adviser to Vajpayee government said to Karan Thapar in an interview that the deal was very good and probably the best that India could have got, however opposition would find faults because they were in opposition! This idea of supporting or opposing the deal on irrelevant points has taken precedence over the real issues that should have been noticed and discerned by the general public.

This has made the issue even more complicated and enigmatic for all the political parties. The main challenge for the parties is who manages the regional media better as these are the sources that influence the large voting population rather than the newspapers like The Hindu and The Indian Express. The deal has its support from urban middle class, which reflects and is getting reflected in the general reports on almost all news channels and in the newspapers, except few like The Hindu. Even criticism or skepticism for the deal has some positive and supporting flavor in English media. But as I said earlier power lies in the hand of regional press as they will have maximum impact. There is no clear trend emerging out of regional and local press but there is very little time is left for all the parties if they want to take any advantage out of this deal. The congress party is going to project it as a major achievement in the next general election but their poor hold on local press especially in North India can cost them dearly. They must learn from last BJP government whose euphoria over Forex Reserve did reach to rural India but their lack of experience in managing local media made that forex boon into bane for the party.

If Congress has to take any mileage out of this they should immediately pay attention to local and regional media where its oppositions have already made significant impact. In the end this deal is the best that India, considering its current position in the world, could have bargained for.

Politics- Analysis of Comunist Party in India

Indian Communist Parties- A group of Hypocrites

No party in the history of political India can be more hypocrite than Communist party of India (Marxist). Although at present practically there is no difference between CPI and CPI (M) and for all practical purposes it is CPM that matters. There are many other left parties in India like CPI (ML), Forward Bloc etc but they are too insignificant in mainstream politics. CPI (ML) is fairly strong in some pockets but they are too extreme to ever get anything in a country like India apart from killing few people. CPI or CPM talks of social justice, secularism and economic democracy. It never elected any woman before Brinda Karat in its Polit Bureau. They don’t have even 15% presentation of Muslim and Christian in their 86 member central committee. Total number of female representation in the central committee is less than 20% (in fact less than 15%). Historically the polit bureau and central committee have been dominated by forward caste. Prakash Karat is a Nair (forward caste in Kerala). Except V.S. Achuthanandan, no one can be said to represent the non bourgeois class.

Let’s examine the hypocrisy of this party since beginning.

CPI came into existence in 1920s. Since the time of inception there has been internal conflict on almost all important matters inside the party. There were several controversial stands and reports that came into light during British rule. The early leaders of the party like Dange, P C Joshi, Ranadive, Rao, Namboodiripad and Ajay Ghosh were never unanimous on any issue of national or international importance which is clear from several reports and papers published later. Party was divided on its stand on the course of action after Independence. There was a clear division – not confusion- on the issue of adopting Mao’s policy in India. Several round of consultation happened among Indian communist leaders and Soviet party leader, Soviet were not too enthusiastic due to lack of CPI’s strength and Nehru’s popularity.

While P C Joshi- first general secretary of Communist Party of India (1935 to 1947) - was too right, Ranadive, who became general secretary in 1948, was too left and Dange remained a confused nationalist- Marxist. Joshi advocated for all out support for Nehru before 1948. He advocated the idea of accepting Nehru’s leadership and integration into mainstream politics. He was reformist. However Ranadive was a radical communist. He was strongly against the idea of Joshi’s reform. By 1948, Joshi lost his strength in the party and the radical group took over and once Ranadive became general secretary (1948-50) after Calcutta conference he decided to make amends for the mistake committed by Joshi. Ranadive was ultra left and wanted China style revolution. He took references from Soviet Leaders. He advocated the idea of arms rebellion and mass uprising and during his tenure as general secretary, Telangana Arm Struggle took place. Earlier CPI had denounced india’s independence saying it was not true freedom. They supported Stalin’s stand that British were ruling India indirectly. S A Dange was in USSR on 15th August 1947 (India’s Independence Day). However Dange was not a supporter of Ranadive and was more right than left. He said publicly that India did not require China style revolution, which the party ignored by saying that it was Dange’s personal opinion and had nothing to do with the party’s official stand. But this sowed the clear conflict inside party. On some issues Stalin backed Dange. Many leaders in CPI opposed Mountbatten- Nehru plan as they regarded India’s independence an Anglo- Imperial conspiracy. The party organized a rally in UP demonstrating that Indians will never use arms against USSR! Earlier the party has opposed Patel and supported Nehru and later they condemned both. Joshi was thrown out of party rank because of the sin- supporting Nehru- was too grave and unpleasant for Soviet Communist at that time. The party which claimed to fight for national liberation started uprising when India was still fighting for its survival, Pakistan had attacked, and poverty and hunger had grappled the nation.
However, within two years the party and especially Ranadive learned the lesson when Cominform condemned the policy adopted by CPI. The editorial in Cominform was nothing sort of humiliation for the CPI and it was the same Cominform that was hailed as a guiding force behind Ranadive’s policy of ultra left movement. This was the end of Ranadive. Ranadive met the fate that his predecessor had faced two years earlier – out of party’s rank and file. Rajeswar Rao replaced Ranadive as general secretary. Rao was left but not as left as Ranadive. Again they were confused on the issue of participating in general election. They sought advise from Soviet Union and later participated in 1951- 52 election. The party cadre was not sure and confident on its stand. Many of its top ranked leaders lost the election.

The narrative so far has made it clear that how since beginning this was the party of confused, ideologically corrupt and hypocrite politicians.
Unfortunately that was not the end of CPI’s puppetry show. Communist party and its leadership remained confused throughout. Dange and Ajay Ghosh were representing right wing of the party while Rajeswar Rao and Punnaiah were left torch bearers. The confusion and chaos inside the party reached at its highest level during mid 50s.There were too many factions. They were all thinking for India’s democracy, freedom and prosperity but ironically all of them were seeking Soviet guidance on this! Ajay Ghosh wanted India- way communist movement, Rao wanted China way. Rao, Ghosh, Dange and Punnaiah travelled to USSR in 1951 (secretly!), representing different factions, to seek guidance and this was the party that claimed to fight for Indian people. Dange who was in the party’s central committee since beginning was thrown out of CC during 1950-51; probably he belonged to Indian path of communist movement. Russians ditched them like the way that they had been doing. They had been condemning Nehru’s policy and Indian parliamentary system and banked on USSR for their support but CPI’s hypocrisy became too glaring when USSR accorded red carpet welcome to Nehru in 1995. Ajay Ghosh who was then the general secretary, to save the face said that he had met Soviet party leader (Khrushchev) and got new instructions, Khrushchev later clarified that he hardly knew Ghosh and never had any discussion of this kind! CPI and its party leadership kept on doing something or the other without any aim and objective. They never had a plan, they never had an ideology and there was no question of having any solution for any problem. Differences between left and right grew during mid 1950’s on China vs Russia issue. In 1956, Ranadive again got prominence in the party, the same Ranadive was nicknamed “left adventurist” after 1948- 50 failures of CPI’s mass uprisings.

During 50’s the internal conflict was very high. At times party reached at the verge of breaking up. CPI was divided on the line of Soviet vs China. CPI said that they were getting help and guidance from Soviet Union, however Soviet leader Khrushchev categorically denied any intervention in this regard.

On Indo China Issue, The Indian Communist was even more incoherent and misleading. They were distinctly two stands (there were several others also but not strong enough), one side was fully supporting Mac Mohan line and other faction was fed up with the parliamentary system and were in support of Chinese stand. Ajay Ghosh (who was General Secretary till 1962) and Dange belonged to Right. Dange supported Nehru. Ajay Ghsoh died in 1962 and Dange became Chairman and E.M.S. Namboodiripad became general secretary of the party. The post of Chairman was created just to satisfy right wing Dange. During war several hundreds party leaders and workers were arrested by Indian government due to their alleged support for China. Although some were unreasonably detained but major faction supported China. Right or wrong, under no circumstances support to foreign force during war can be justified. Rather in my opinion leaders who supported China should have been punished severely. Here, one would be forced to think and question, are these communists really Indian and did they really think any good for India. The realty was these hypocrites denounced religion, but they had formed a new religion and were extremists in reality. The religion was Communism. It was like where you are from Middle East or Pakisatan or India or Europe, if you are a Muslim your holy place will remain Mecca. Whatever country you belong to, if you are a Catholic Christian you will be guided by Pope on religious matters. This is what exactly was the and remains the condition of Indian communists, they are Indians but they continue to be guided by non Indian forces because for them communism is not an ideology it is a religion, and whatever one might say all religions are based on the principles of unquestioned faith and devotion rather than rationality.

When these so called Left communist got fed up with leadership of Centrist Dange, they decided to break away. CPI (M) was formed in 1964. Namboodiripad and Jyoti Basu were instrumental in forming CPI (M). P. Sundarayya became the first general secretary of CPI(M). From this point division of CPI and CPM were even starker. CPI under the leadership of Dange was supporting Congress. Even during emergency CPI supported Indira Gandhi! Next decisive moment was India – Pakistan war of 1971. CPI openly supported Indira Gandhi. CPM was confused. Even on war with Pakistan they were confused on taking a stand. The reason of confusion was very simple, China had sided with Pakistan so the leaders who believed in Russia were supporting war and others who were guided by Chinese were opposing Indira Gandhi. Prior to Indo- Pak war of 1971, during food crisis and 1965 war with Pakistan, CPI (M) was busy organizing band, strike, rallies and hartals in different part of the country. It is extremely difficult to find any constructive and nation building movement adopted by this party at any crucial juncture. Many communists say that government suppressed the movements using coercive force, but they don’t realize that it was India that these anti national movements during war time were suppressed with minimal coercion, in China – the country they are still in love with- they would been suppressed rather made silent with bullets leaving no scope of any other movement.
CPI supported Indira Gandhi on emergency issue, CPM was strongly against it. There was no doubt that Indira Gandhi was taking steps that could have destroyed the democratic and pluralistic fabric of independent India, but even there communist party was confused! CPM called Indira Gandhi dictator, the same CPM hailed Indira Gandhi in 2003, when Buddhadeb Bhattacharjee unveiled a statue of Indira Gandhi on Republic Day in Kolkata and Prakash Karat said "Indira Gandhi was an important leader who safeguarded India's national interest vis-a-vis America and that is important for us". So the idea is any one who opposes America is welcomed even if the same person had committed dictatorial sins during emergency and that’s CPM!
This party’s confused and hazy policies continued during Janta government. The formation of Janta party government in 1977 was probably one of the most important moments of independent India, it assured people and country that democracy in India was strong, based on principles and was not a result of any impulsive and emotional outburst. The party was doing good and had reversed undemocratic amendments passed by Indira government. The country was doing good and probably lot more could have been done if Morarji Desai could have continued as the prime minister. CPM that supported in forming Janta government and had labeled Indira Gandhi a dictator later withdrew support from Morarji Desai government primarily because of Industrial Relations Bill that CPM considered anti-working class. Janta party government fell and Indira Gandhi became prime minister in 1980. For CPM the only thing that mattered always was its hypocritical, empty and hallowed party ideology. They pulled down Morarji Desai government as they believed that the then government was taking anti working class stand. How many of the people belonged to working class? What sections of the society were represented by trade unions?

Throughout 80’s the anti government and just anti government policies of CPM and CPI continued. They supported the VP Singh government in 1989 along with BJP. Remember, they had always called themselves champion of secularism.

So far if any one looks at the Communist party’s hypocrisy, it is evident. No minute observation in this regard is necessary, since its inception till today it is dominated by upper caste. P. C Joshi - upper caste, Dange- upper caste, Ranadive- upper caste, Ajay Ghosh- upper caste, Rao- upper caste, and Namboodiripad (general secretary- 1977- 1992)- upper caste. There were hardly any top leaders from lower caste. Even today Prakash Karat belongs to the upper caste. Since beginning there were no women in party’s leadership. No top leader from Minority section. This party claims to fight for social justice, gender equality, secularism and equity.

I will discuss CPI and CPM in the context of rservation, economic liberalization and BJP government in separate articles as these issues require special attention.

Finance- Basics of Due diligence Process

Basics of Due diligence Process

Due diligence is an important aspect in every aspect of business planning. However when it comes to private equity deals, LBOs, MBOs or any other M&A deals it becomes an absolute necessity. Here I will be discussing some basic aspect of any generic but quality due diligence that should be considered during the process. There is nothing new in this. All the analysts use these or follow these in some way or the other depending upon the context and requirement.

Objective: Any due diligence should start with very clear understanding of the objective by all the stakeholders. It is not so uncommon to find that the substantial part of analysis go waste or redundant due to unclear, incoherent, and vague articulation of objective and goals. The goals and objective should be properly articulated and understood.

Project planning- Once the objective is clear and well articulated, there should be a proper work and project plan. This seems like too obvious but this is not so easy, mostly due diligence projects are tight on deadline and thus even slightest mistake in project planning can cost a lot. Project planning requires extensive experience, great amount of knowledge and trouble shooting skills. It needs following understanding of which part of due diligence project should be followed by which part- this is very tricky and important. If you could not decide on the order of the segments of analysis the project might fall into a loop and in the end the whole tam end up taking much more than required time. E.g generally analysis of financial forecasting section should start once market opportunity section has been done upto certain extent.

Best practices of due diligence analysis- this sounds very trivial but if you don’t know this you might end up keeping yourself awake for several nights! Most of the analysts who complain of over stretching on due diligence projects don’t follow the best practices – they think they are saving time by not following this! Some of these are- keep the repository of sources (used directly in the analysis) handy and as detailed as possible. Make them such that in case at time you need to see where and how did you get some important info, you can look for it in 10 seconds. And this is not about file management. Another can be keep a handy and clear repository of all the major and minor assumptions that you make along with the supporting arguments. There are many other analysis and probelem solving best practices.

Execution- Once project planning and scheduling are done, hard analysis should start. Generally the order of the analysis should flow in the following direction; however it can and should vary depending upon the context and requirement

• General macro economic analysis of the target company’s county of operations (if the company is major MNC this is generally ignored).
  Identify from which region/country the target company is deriving significant revenue. Analyze the macroeconomic environment the regions/ countries.
  The above two become very important specifically if the target company has been operating for quite some time i.e. in technical terms if it is in mature stage.
• After macroeconomic analysis, industry sector of the target company should be analyzed. The important point is, if you analyze only the direct industry sector of the target company, you may miss on some very significant issues that can affect the investment in the long run. You need to analyze at least the first branch of partner industries growth of which can affect the target company’s growth directly or indirectly. E.g if you are analyzing Equinix, a data center company, you need to analyze the IT Industry in brief as reduction in IT budget can have both positive and negative impact on Equinix. This is not as simple as sounds, as, if you are not experienced you might end up analyzing all industries! The idea is to analyze the industry that affects the target company’s industry not the revenue verticals of the target industry!
• Once the microeconomic analysis is done, you should come to business models. Most of the analysts and firms jump to analyzing the target company before analyzing business models. This might lead to wrong conclusions. The point is even if a company is doing badly for the time being but if the business model is robust and lucrative in the long run business can be turned around more easily. Thus analyzing various business models- integrated, specialized, niche, broad business mix- before analyzing the company is preferable. This requires good amount of problem solving skills as this is more indirect and inference based and requires sound business judgment.
• After analyzing Business Model, comes company analysis. Here the analysis is separated primarily into two parts.
  Financial – this is standard financial statement analysis- growth, margins, capital use.
• i. Financial statement analysis needs to be conducted from both a time series and cross sectional viewpoint. The time series provides perspective on historical performance that provides backbone for further analysis and cross sectional analysis in which each ratio is compared to a benchmark average provides relative performance. Again, this is not as simple as I have written and should be customized as per the industry, region and maturity stage of the target company.
  ii. Financial ratio analysis can be combined with multiple discriminant analysis to predict the likelihood of bankruptcy.
  iii. Cash Flow analysis- probably on of the most important parts of financial segment in case of private equity deals. Cash generation and capital use, Debt capacity and funding sources, Levered equity cash flows, capital expenditures and other capital outlays, free cash flow are some important items that need special care
  iv. Valuation- there is nothing more to explain. People who have done it properly, can understand! Whatever way you are using (FCF, DCM, Multiples, Earning) if you are doing it properly it can be as complicated as you want to make it. Treatment of simple Cash items can be a day long affair in some cases! This is too vast and need separate treatment. I will write more on this later.
  v. Financing and IRR- This is fairly sophisticated and minor misassumption can lead to significant deviation. But in the end this is what is going to matter the most.
• Strategic- here you analyze the target company from strategic perspective. Like its business strategy, growth strategy, diversification strategy, product and services, operating model, comparative analysis, gap analysis etc. This needs a separate treatment and I will be writing details on this later. This section is very sensitive as your other sections should be in sync with this section. Many problems arise during review if this section is not done in coordination with financial section.
• Exit strategy - This needs special treatment and should be done with utmost care. There is no thumb rule or one size fits all formula. This should be scenario based and iterative.