Construction

Delivering Value Through Buy-Side Due Diligence

The Challenge:

A client looking to acquire a $3M revenue business needed a thorough financial analysis to ensure they were paying a fair price and identifying any risks before finalizing the deal. Key issues included:

No formal accounting system – Financials were tracked in Microsoft excel with no sub-ledgers for receivables or payables.
Inconsistent revenue recognition – Deposits were collected, but revenue timing mismatches led to overstated sales.
Errors in financial statements – Keying mistakes caused large swings in material costs, and HST was estimated rather than properly tracked.
Lack of financial oversight – The business was run by older owners, with only one actively involved, leading to inconsistent reporting.
Full subcontracting of operations – No internal cost control or visibility into margins.

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The Solution:

We were engaged to conduct buy-side financial due diligence and provide clarity for the buyer. Our approach included:

Recreated financial statements – Built an accurate balance sheet and income statement for business analysis and financing.
Established proper accounting methods – Shifted financials from cash basis to accrual accounting for consistency.
Identified revenue recognition errors – Adjusted financials to properly account for prepaid deposits and eliminate overstated sales.
Corrected financial reporting issues – Identified costing errors and revised HST filings, leading to restatements and tax return corrections.
Provided insights on profitability – Showed that margins were understated, giving the buyer leverage in negotiations.
Worked with attorneys and advisors – Helped restructure the deal to protect the buyer from tax and financial exposure.
Secured financing for the buyer – Provided a clean financial package that enabled the buyer to secure bank financing for the acquisition.
Supported post-acquisition integration – Assisted the buyer for two years post-sale, ensuring a smooth transition and operational improvements.

The Outcome:

$600K reduction in purchase price – Due diligence findings allowed the buyer to renegotiate and secure a better valuation.
Reduced financial and tax risk – Deal was structured to insulate the buyer from tax exposure identified in due diligence.
Secured bank financing – Accurate, restated financials gave credibility to the business, making financing possible.
Optimized operations & profitability – With clean financials and insights, the buyer started bringing key supply chain functions in-house, improving margins.
Growth from $3M to $8M in four years – Using the data provided during diligence, the buyer developed a long-term strategy that fueled rapid growth.
Ongoing advisory support – We worked with the buyer for two years post-sale, helping them integrate and scale the business successfully.

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Looking to acquire a business? Let’s ensure you get the right deal and manage risk.

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