Commercial Due Diligence Executive
Select one of the case studies below:
Finance Director
Improvement of Financial Reporting & Preparation for Sale – Manufacturing
England
A private equity backed equipment provider to the offshore oil and gas industry with operations in both the UK and US had suffered a liquidity crisis (unable to service its debt) which was significantly impacted by a loss of faith in the company’s financial reporting. The company was slated for an imminent sale, but deal terms and valuations could not be negotiated given the situation.
An Interim FD was brought in to restore confidence and to ascertain whether the business could be sold for an appropriate figure. Upon his arrival he determined that the financial staff lacked quality, no accurate financial and operational systems existed, there was a disconnect between forecasting and accountability amongst management, there was no medium to long term working capital or capital expenditure planning, and the company’s trading terms with its customers were well below industry standards.
The Interim FD agreed with the private equity firm that the correct path was to sell the company’s key operations (to a corporate buyer who could best extract value and be wiling to invest in the business) and immediately recruited 3 high quality interim finance managers to supplement and support the existing finance staff. (Given the short time scales, replacing the existing finance staff was not a viable option.) He also found that the existing management team could be relied upon if sufficiently directed, monitored, and reassured.
In order to prepare the company for sale, cash requirements had to be limited and the finance team had to be very supportive and effective in meeting buyer information requirements.
Limiting cash requirements was tricky in that it could not be done at the expense of the business’s operations being destroyed and/or losing customers due to their not being properly serviced. It became clear that substantial cash could be released from customers by renegotiating trading terms and from resolving a large insurance claim but in both cases management had to be galvanised into acting. Clients eventually agreed to advance and/or progress payments on major projects, which generated a £4 million cash benefit, and the insurance claim resolution released $4 million. In addition, trading terms with customers and creditors were changed and improved.
Improving the financial reporting and providing accurate and informative data for prospective buyers involved the implementation of a number of new reporting systems, instituting a rigorous and centralised cash control regime. It also enabled the completion the annual audit under difficult circumstances and created a very substantial data base for the due diligence process.
The end of the 6 months assignment saw the successful sale of the company for a figure which covered the entire debt load and returned the private equity firm’s original investment along with a small return. The initiatives implemented by the Interim FD also resulted in the company’s sales and operating income doubling within 12 months.
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