The Importance Of An Accounting Due Diligence Team

January 2013       Download PDF      Print

Client Objective

Ivan Russell hoped to sell Van-Am before 2013 to take advantage of potential tax savings and to retire. He embarked on the sale process with our firm in June of 2012, giving our team six months to find a compatible buyer. While we were confident that we could attract multiple interested parties, the success of the transaction would depend largely on our ability to manage a smooth and efficient due diligence process. We also wanted to make sure Ivan received maximum value for Van-Am.

To facilitate a smooth due diligence process and maintain leverage in negotiations, we needed to maintain clear communication with the prospective buyer. This would be especially important when discussing the company's accounting practices. To ensure that the transaction remained on schedule (and for Ivan to achieve maximum value), Van-Am needed additional support from professionals with technical accounting expertise, in addition ot knowledge of the transaction process.

Solution

Ivan Russell engaged our firm for additional support from our due diligence team, which served as a liaison between Van-Am's accounting personnel and the buyer's deal team. With their expertise in GAAP-based financing reporting, our due diligence professionals were able to gain a clear understanding of the company's accounting practices. They also provided insight into how buyers scrutinize a company's reported earnings in an M&A transaction. By combining this knowledge, we were able to explain Van-Am's accounting practices in a manner that was beneficial to our client.

As the buyer conducted its in-depth review of the company's financial performance and challenged reported earnings, we engaged in proactive discussions about specific accounting areas - such as those where non-GAAP financial reporting was used, or where conservative estimates were deployed. Ultimately, our ability to communicate clearly with the buyer on these topics helped us maintain leverage and avoid delays during negotiations.

Our team also provided additional services to help increase Van-Am's value. We created and implemented a physical inventory process to ensure that accurate inventory levels were reported when determining target and final working capital. Furthermore, we prepared accurate estimates for closing working capital.

Result

Van-Am was sold to Silver Sail Capital and 3P Equity Partners in December of 2012. With additional support from our due diligence team, we were able to help Ivan achieve his personal and strategic objectives. Ultimately, he received a significant premium over Van-Am's appraised value and was able to retire immediately.

About Van-Am Tool & Engineering

Established in 1981, Van-Am has become a leading provider of high-quality tooling, stamping, machining, and manufacturing services to a variety of industries and customers throughout the Midwest. The company also provides laser cutting, press braking, and robotic welding services, and offers design and build services for projects of all sizes and complexities.

About 3P Equity Partners

Based in San Francisco, California, 3P invests in middle-market companies to help maximize value and drive growth. The firm works with management teams to structure operational improvements and strategic initiatives that help ensure long-term success of its portfolio companies.

About Silver Sail Capital

Silver Sail, based in Los Angeles, California, invests in middle-market companies in North America and is supported by a strategic advisory board of individuals with significant experience in capital markets. The firm partners with management teams to provide operational and financial support to aid in long-term growth.