Cookie Notice: This site uses cookies to provide you with a more responsive and personalized service. By using this site you agree to our use of cookies. Please read our Cookie Notice for more information on the cookies we use.

Skip to Content
Case Study 1 min read
Financial due diligence leads to successful price reduction for company acquiring a $50 million manufacturer.

 Image of two people talking

The challenge

  • Target was located on the west coast and outsourced all production to China
  • Customers included large national and foreign chain stores
  • Purchase price was based on forecast
  • Target proposed several EBITDA adjustments

The solution

  • Completed financial due diligence
  • Performed cut-off testing on accounts receivable and payable
  • Performed lower of cost or market testing and slow-moving obsolete testing on inventory
  • Analyzed working capital trends to assist the Buyer in establishing a benchmark

The benefit

  • Discovered several exceptions to GAAP that materially changed the financial statements
  • Identified 20 percent of the inventory had not sold in the past 12 months
  • Buyer negotiated a post-LOI purchase price reduction based on the rejection of several proposed adjustments as well as additional adjustments discovered during due diligence
  • Established a target working capital based on trailing six months due to the recent growth of the business and holiday ramp up