Subcontracting

Subcontracting involves outsourcing the production of goods or services to external providers that the principal company could theoretically perform itself. In financial due diligence, subcontracting analysis is essential: it reveals operational dependency on critical suppliers, assesses supply chain disruption risk and examines continuity and exclusivity clauses. Subcontracting costs — which may represent 30–70% of production costs in some sectors — are a key driver of gross margin and must be analysed for pricing dynamics and contract continuity risk.

‍

Example: due diligence on a Swiss precision components manufacturer reveals 60% of raw parts production is subcontracted to a single Turkish supplier. This concentration represents a critical operational risk: a supplier failure or contract termination would paralyse 60% of production. The acquirer makes a supplier diversification plan a condition precedent to closing — requiring signed secondary sourcing agreements before the SPA can be executed.

‍

Hectelion analyses subcontracting dependencies as operational risk factors in every due diligence, quantifying the impact on margin sustainability and business continuity.