Quality audit

How experience and execution enabled a fast-growing company to make a significant acquisition


The ability to adapt to change is a key element of a company's ability to compete. This is particularly true of fast-growth companies; as the size and structure of an organization rapidly changes, management will often be faced with unfamiliar challenges and opportunities. In many situations, the benefit of experience can mean the difference between success and failure.

This was the case when an independent apparel retailer was acquired by a private equity firm that went on to quickly acquire three more similar companies. Within 18 months, the small, independent retailer had expanded to four major brands and locations across the country. Annualized revenue increased six-fold.

Then, management decided to acquire a fourth company. The planned acquisition would nearly double the company's revenues and would involve taking a publicly-held company private. But to complete the deal, and to meet the deadline for the significant financing around it, the company needed to file audited financials that integrated the three recently acquired entities.

The audit deadline was imminent and inflexible. The financial statements needed to be prepared in a very short time frame, but the company's rapid growth through acquisition had created several new complex business, accounting, and tax issues, and the ongoing integration of the most recent acquisitions was already straining internal resources. It soon became clear to the PwC audit team that company management was greatly underestimating the time and resources needed to complete the audit and issue a set of complex financial statements.

"Within an 18 month period, the management team went from running a single entity generating about $80 million in revenue to managing a combined entity of approximately $1 billion," recalled Private Company Services partner Daniel Hutchins. "They didn't have the experience to know what it takes to get an audit done and issue a set of complex financial statements when you grow that much, that quickly. So we had a conversation with management and said, 'This will never get done in this time frame unless you change your approach.'"

The PwC team explained what it would take to integrate three significant acquisitions from a financial reporting perspective, prepare a consolidation, and address the complex applicable accounting standards — all within the accelerated schedule mandated by the financing requirements.

"We helped them to understand what the project would require and to appreciate the limitations of the resources they were planning to rely on," said Hutchins. "We worked with them collaboratively, not just around what we were doing, but around how they needed to supplement their existing resources to get the project done." At the same time, the PwC team deployed audit teams to work onsite at the company's three new locations across the country.

Because PwC was able to foresee complications and execute efficiently, the audit was completed on time and the company was able to complete the financing, the acquisition, and to pay a significant dividend to stakeholders.