Chapter 8

Due Diligence Guidelines –

Business Model

7. Trends and Patterns

7.1 Guidance

7.1.1 An important goal of business model due diligence is to identify key business trends and patterns that may have a continuing impact on the performance of the applicant.53

7.1.2 When enquiring into the key trends underlying the listing applicant’s business, the sponsor may turn its mind to (among others) the following additional aspects and the listing applicant’s market positioning in light of these factors:

(a) historical performance of the industry – e.g., market capacity and growth situation;

(b) characteristics of the industry – e.g., seasonality, cyclicality;

(c) structure of competition and performance within the industry – e.g., bases of competition, shifts of competition structure within the industry, effect of technology upon competitive position, international expansion, entry barriers and potential new entrants, risks of obsolescence, etc.; and

(d) bargaining positions – e.g., stability of key suppliers, key users, key distributors and other key players; product or service substitution; cost/price relationships; presence of predominant suppliers and users; likelihood of integration with suppliers and users, etc.

Endnotes

53. However, this does not mean that information about global economic trends, etc. are suitable for inclusion in a prospectus. See Paragraph 3.6 of Exchange Guidance Letter GL48-13.