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DUE DILIGENCE CASE STUDIES

Client: Private Equity Investor & Mezzanine Lender
Company: Manufacturer of Sporting Goods
Revenue: $60,000,000
Equity Investment: $33,200,000
Market Capital: $35,000,000
Existing Loan: $12,000,000
New Capital: $20,000,000
  • Validated the business case for acquisition and privatization of 2 publicly held distributor / manufacturers.
  • Completed diligence on both the acquisition and the acquiring portfolio.
  • Identified non-recurring EBITDA adjustments totaling $2.9 million and EBITDA synergy savings from consolidation of $3.3 million.
  • Determined acquisition integration timing of EBITDA savings.
  • Identified asset-based lending constraints associated with the Company's foreign inventory purchases.


Client: Mezzanine Lender
Company: Container Manufacturer
Revenue: $200,000,000
Equity Investment: $25,000,000
  • Identified understatement in accounts receivable of $400,000.
  • Researched and documented company's contractual ability to pass-through raw material price increases.
  • Identified differences in GAAP reporting procedures between company and foreign parent.
  • Evaluated standard costing systems and valuation differences between foreign and domestic entities.
  • Commented on due diligence report generated by "Big 4" accounting firm and identified material discrepancies in EBITDA roll-forward computation.
  • Analyzed the impact of the Puerto Rico tax rate on the overall effective U.S. tax rate for "Newco".


Client: Senior & Mezzanine Lenders
Company: Lumber Distributor
Revenue: $92,000,000
Loan Size: $22,000,000
Senior Loan: $6,000,000
Equity: $500,000
  • Determined internal controls to be inadequate, resulting in inaccurate interim financial statements.
  • Discovered an existing senior lien relating to a significant segment of the business and secured by a performance bond. A unique loan structure was required to carve out collateral behind performance bond; otherwise, the existing lien could trump the new senior loan.
  • Generated 3 years of combined income statements for 3 related companies previously not combined.
  • Created a combined, trailing 12 months income statement and EBITDA schedule.
  • Identified inefficient sales bidding process.
  • Determined current controller incapable of assuming role of CFO.
  • Discovered potential risks related to accounting software.


Client: Private Equity Investor
Company: Professional Cleaning Services Provider
Revenue: $5,000,000
Equity Investment: $15,000,000
  • Conducted pre- acquisition due diligence on behalf of equity investor.
  • Identified non-recurring EBITDA adjustments totaling $2.3 million.
  • Identified inadequacy of controls over master franchise fee reporting; suggested cost-effective procedures to minimize exposure of underreported franchise income.
  • Identified improper deferred revenue reporting and adjusted earnings in accordance with GAAP.
  • Evaluated proprietary software management system and identified insufficient controls; assessed timing of rollout of future accounting modules.
  • Evaluated the impact of a qualified stock purchase and possible §338 election.


Client: Mezzanine Lender
Company: Lumber Distributor
Revenue: $110,000,000
Equity: $23,000,000
Revolver Credit: $6,500,000
Term Loan: $45,000,000
  • Consolidated 3 separately reported companies for current year and 2 previous years. Identified and eliminated intercompany transactions.
  • Re-calculated EBITDA on a consolidated basis.
  • Scheduled the trailing twelve months P&L for 3 companies, created pro-forma adjustments, determined normalizing entries and re-calculated profit sharing contribution.
  • Identified internal control issues related to material amounts of sales and cost of sales allocated to improper periods.
  • Identified other accounting and internal control issues that rendered the interim financial statements unreliable.


Client: Senior Lender
Company: Manufacturer and Distributor of Residential and Commercial Doors
Revenue: $124,000,000
Loan Size: $10,000,000
  • Saved company approximately $1,000,000 in tax liability by evaluating the capitalization policy of manufacturing overhead.
  • Identified benefits of integrating inventory and general ledger software packages.
  • Created inventory turnover report to manage purchasing efforts and isolate slow moving products.
  • Assisted management in their search for new outside accountants.


Client: Mezzanine Lender
Company: Computer Hardware and Proprietary Software Developer
Revenue: $118,000,000
Equity Investment: $20,000,000
  • Determined accounts receivable reserve understatement of $2,300,000.
  • Surfaced concerns regarding the lack of knowledge and understanding of the company’s business by the financial personnel.
  • Uncovered material internal control weaknesses relating to revenue recognition.
  • Initiated the creation of software programs to capture revenue transactions on a timely and accurate basis.
  • Developed historical accounts receivable write-offs.
  • Identified various service provider partners and locations within the US that had higher than normal rate of accounts receivable write-offs.
  • Created method of estimating bad debt reserve and identifying potential uncollectible accounts receivables.
  • Implemented procedures and timing guidelines to perform monthly “close” and instituted procedures to analyze each balance sheet account.


Client: Principal
Company: Fuel Sales & Convenience Store Operator
Revenue: $97,000,000
Loan Size: $7,500,000
  • Conducted financial due diligence to assist with stock acquisition.
  • Ascertained inadequacies of EBITDA “add backs” totaling $600,000.
  • Identified $265,000 of downward adjustments to EBITDA, which resulted in a 38% decrease in the target's purchase price.
  • Discovered material overstatement in reported inventory balance as much as $38,000.
  • Prepared pro-forma financial statements.
  • Identified purchase price adjustments that would impact cash balance and require reimbursement by the seller.
  • Prepared adjustment schedules to reflect the fair market value of the current lease payments.
  • Assessed competency of the accounting department.




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