Buy-Side Due Diligence - Divisional Carve-Out and Cost Analysis
SCENARIO
Purchase of certain divisions of a larger organization
Private equity firm is looking to purchase certain divisions and partial divisions of a larger parent organization.
Parent company allocates certain overhead costs to all divisions and estimates employee burden rates based on parent company experience but fails to allocate certain overhead costs which relate to the target divisions.
Confidential information memorandum estimates EBITDA using high level assumptions to allocate costs and bifurcate certain divisions. EBITDA is the basis for determining purchase price.
APPROACH/ANALYSIS
Carve-out financial and accounting due diligence
Laurus’ approach included:
OUTCOME
Stronger negotiation
As a direct result of our work, our client was able to negotiate a reduction in purchase price of approximately 12.5%.
In addition, our written report and conversations with lenders assisted our client with obtaining necessary financing to close the deal.
Laurus’ analysis of working capital supported the negotiation of a peg amount used in the sale and purchase agreement to protect the client from changes in the business that occurred between the signing of the sale and purchase agreement and close of the transaction.
