Case Studies
Industries: Manufacturing, Consumer Products
Primary Services: Operational Diligence, Quality of Earnings, Business Plan Validation
The Company was a Developer, Manufacturer, and Distributor whose primary distribution channels include consumer retailers and industrial distributors of Power Tool Accessories. The Company has two main product lines sold into the consumer and industrial marketplaces and account for annual revenues in excess of $75 million. Drills, including drill bits and drill bit sets, are sold into the consumer markets and account of 30.7% of revenues or $23.0 million of gross sales for FY2005. Saws, including hole saws, reciprocating saw blades, jig saw blades, hacksaws, and band saw blades, are sold to both consumer and industrial markets and account for 69.3% of revenues or $52.0 million of gross sales in FY2005. Located in Massachusetts, the Company is a wholly owned subsidiary of a Parent Company. The Parent Company was engaged in the manufacturing and distribution of industrial cutting tools for the metalworking, mining, oil and gas, and construction markets. The Parent Company was the market leader in North America and the second largest tooling company in Europe with annual revenue in excess of $2.3 billion. The Company was the Parent Company’s only consumer products and linear cutting tool (saw) business.
As the Parent Company’s only consumer products and linear cutting tool (saw) business, the subsidiary was no longer considered by the Parent Company’s senior management to be part of the Company’s long-term strategy for growing the industrial tooling solutions business. As such, both the Parent Company and the Company believed that its growth and profit prospects would be greater under different ownership. Our experts were engaged by the potential buyer, a Private Equity Fund to conduct an extensive financial and operational due diligence of the Company to be relied upon by not only the PE Fund, as the potential buyer, but the senior lender, mezzanine lender, and additional equity lender to finalize the purchase.
Our experts prepared a written financial report that included the following, a review of the Company’s business plans and historical performance; evaluation and validation of the Company’s EBITDA add-backs; evaluation and validation of any and all financial forecasts; review and examine the quality of balance sheet items for possible inflation and unidentified value for the purchaser; examine the Company’s exposure and relationship with their largest customer; examine the staffing and management resources and determine a transition plan for the purchaser; examine the Company’s WIP and potential for lending availability; access and examine the purchase contracts of raw materials; and evaluate and review the financial systems, controls and process. Due to the upfront due diligence performed, the purchaser was able to make an informed decision about revising their purchase price for the business.
Joe Nappi, CTP
Senior Managing Director
Strategic Advisory Practice
+1 617 600 3602
[email protected]
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