Financial due diligence case study

How one private equity firm was able to pay a fair price for a target, improve the company’s efficiency and reduce costs

The issue: This private equity client needed to acquire their target at a fair price and find ways to streamline the company’s operations to improve efficiency and reduce costs.

Our approach: We deployed a cross border, cross functional team of financial and tax specialists in the US and Asia to conduct due diligence. We uncovered aggressive accounting practices that suggested the balance sheet was not as strong as the seller claimed. We helped the client understand how the working capital purchase price adjustment mechanism in the purchase agreement could be used to its advantage. Also, during the tax diligence, we determined the company’s existing sales structure was inefficient and unnecessarily expensive and recommended restructuring the way inventory was purchased and sold between the US and Asia to minimize customs and duty tax.

The outcome: We helped our client secure the winning bid for the target without overpaying. After the client paid the seller’s asking price upfront, they negotiated a $25 million refund using the working capital adjustment mechanism, reducing the final purchase price by over 5%. The new tax structure created is estimated to save the company over $50 million in customs and duty fees over the next three to five years which will result in a direct improvement to the company’s future EBITDA.

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