Nimble, Thorough Response Leads to Successful Transaction

July, 2013

Situation Overview

The owner of a staffing business had identified a staffing company that he wanted to acquire. The financial records of the target company, which was in bankruptcy, were not auditable and there was evidence of prior fraud. The target was created from the acquisition of more than four separate businesses, increasing the complexity of the transaction. The target company’s records were made available for due diligence for just three days.

Issues

The staffing company owner asked WBL to review the financial information of the target company to identify any issues that might be relevant to the transaction and give him some comfort on the revenue levels, margins and cash flows being generated by the business. The owner was aware that the compressed timeline would be a challenge for his due diligence providers and accepted the risk that not all issues material to the transaction might be identified. In addition, because of the evidence of fraud within the target company, the prior audit report had been pulled by the auditor. Because of the buyer’s deep knowledge of the industry, he was willing to accept the risks in the hope that he could improve the company he was buying.

Action

WBL’s due diligence team was able to mobilize and initiate the review immediately. WBL’s team performed a thorough review of the target’s revenue, expenses and margins. The team used source documents and underlying accounting records—bank records, payroll records, general ledgers, etc.—and creativity to give the buyer comfort to justify the investment he would make to acquire the target. WBL was able to model the current cashflow of the target, satisfying the buyer that he could cover the required debt service and generate a return on his investment.

Outcome

The buyer was able to acquire a distressed company at a discount. The work that WBL performed gave him comfort with the deal and he moved forward with the transaction. He acquired the various businesses and discovered within six months that the results were consistent with the analysis WBL had prepared.

For more information about this case study or to discuss your next transaction, contact:

BenatorBruce Benator, Audit Partner
Transaction Services Practice Leader
(770) 512-0500
bbenator@wblcpa.com
KoranskyTodd Koransky, Tax Partner
Transaction Services Specialist
(770) 512-0500
tkoransky@wblcpa.com
Pursuant to IRS Circular 230 disclosure requirements, please be advised that any written tax advice or information contained herein is not intended to be used to avoid any penalty imposed by a taxing authority, nor may the recipient of this document use such information for that purpose.  Please contact the author of this document with any questions regarding this disclosure.