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Buy side due diligence for manufacturer

May 31, 2017 Case Study 1 min read
Financial due diligence leads to successful price reduction for company acquiring a $50 million manufacturer.

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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

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