Due Diligence
Retained by Private Equity Firm for Due Diligence of Family-owned Business
Issue: Perform due diligence and assume turnaround management role
Approach:
- Determine material ($6 million) misstatements in financial statements
- Assume CFO position to help manage turnaround and cash flow
- Provide leadership to motivate employees and maximize success for private equity firm and family owned business
A private equity firm retained RLW to assist in a preliminary due diligence effort and then act as interim Chief Financial Officer of a family owned business in Florida that was seeking a turnaround and equity partner.
The company had a history of management changes (CEO, CFO and VP Sales all exited within previous 30 days) along with increased sales without corresponding earnings improvements.
Cash flow was a major issue and the ABL facility was nearing the limit and termination. RLW joined forces with the new CEO and helped lead a 90 day turnaround team. During the extended due diligence phase, RLW identified $6 million of material prior period adjustments that were necessary for the financial statements to be accurate.
The business was basically insolvent so an emergency cash plan was developed and implemented. All major facets of the business, particularly the Asian supply chain and sales function, were analyzed and determined to be deficient. Several multi-million dollar counter claims were discovered and initiated against certain vendors.
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