Many highly successful businesses have accounting environments that hold them back from reaching their true potential: particularly when it comes time to sell the business.
At G-Squared Partners, our team is often drafted in to help businesses address these issues in preparation for a potential sale. It’s a relatively insignificant investment that drives outsized returns, streamlining the due diligence process and increasing the likelihood of a successful exit.
Our team recently advised a New York-based software company on their sale to a private equity firm: a transaction that, when closed, netted the business’s owners close to $300 million. Thanks to the support of G-Squared Partners, our client was able to benefit from a smooth process that delivered a successful outcome for all parties.
In this case study, we break down the steps our team took to prepare the company for sale and assist with the transaction.
A Challenging Accounting Environment
Our client, a software business established by a husband and wife team in 1985, had built their company up to a $40m a year business with over $10m in EBITDA. After a long career, the business owners were ready to retire and had begun the process of looking for an investment banker to lead the sale of their business.
The business had no external investors, no debt, and was growing profitably – making it a highly desirable acquisition target. But there was one major barrier to success: a disorganized accounting environment.
The company hadn’t closed its books in four years. During this time, there had been minimal reconciliations, no documented monthly close processes and no annual audits – issues that would have been major stumbling blocks to any transaction.
To resolve these issues, the business owners turned to G-Squared Partners.
A Comprehensive Sale Readiness Process
To meet the demands of due diligence and the Quality of Earnings (QoE) process, the business needed to both restate the past four years of its financials and put more robust processes in place on an ongoing basis.
G-Squared Partners led both of these projects, painstakingly restating four years of financial statements from scratch. Including tasks like reconciling monthly bank statements and reclassifying revenues and expenses, this was a significant undertaking, but one that was vital to the due diligence process.
When the business went out to market, it generated a lot of interest. Our client identified a couple of potential acquirers and entered the due diligence process.
During this stage, both potential acquirers retained a Big 4 accounting firm to lead the QoE process. Thanks to the hard work of our team, this process was relatively smooth. At G-Squared Partners, our goal is for the financial package we put together to answer 70 - 80% of the potential acquirer’s initial questions.
To answer additional questions, our team spent time with the potential acquirer and their advisors, walking them through the financial statements and our associated work papers and explaining how certain numbers were calculated. We engaged in emails, phone calls, meetings, and more – all with the end goal of ensuring the potential acquirers were comfortable with the accuracy of our client’s financial statements and projections.
The level of preparation our team put in made this a smooth process, and soon, the transaction moved past the due diligence phase and on to final negotiations of the deal. This significantly streamlined due diligence, allowing every party to agree on the facts and focus their energies on productive negotiations.
A Life-Changing $300m Exit to Private Equity
Following a smooth due diligence process, our client ultimately sold the business to a private equity firm for close to $300m. It was a transaction that rewarded the founders’ decades of hard work and enabled them to build a lasting financial legacy for generations to come.
With such a successful outcome, it’s impossible to overstate the importance of having robust financial information. When it comes time to sell a business, valuations almost always boil down to the business’s financial performance. Potential acquirers closely examine the financial strength of the company, evaluating key metrics and analyzing financial statements.
Any inconsistencies in a business’s numbers cause potential buyers to question everything, resulting in a due diligence process that drags on and leads to valuations being revised downward as new issues are discovered. Failing to engage in a comprehensive sale readiness process is a misstep that can cost entrepreneurs millions of dollars.
After the transaction closed, the private equity firm that bought the company retained G-Squared Partners to support the transition process.
Our team provided a variety of post-transaction services, from creating an opening balance sheet to performing working capital reconciliations and purchase accounting adjustments as well as monthly close process and financial statement preparation. This support continued until the integration was complete, and served as a real indicator of the value the skilled professionals at G-Squared Partners bring to every engagement.
