We were engaged in 2009 to provide accounting cleanup, define tax strategies, and advisory services. We executed an accounting cleanup process approximately three years in advance of the actual transaction. He met with legal counsel and set up a more effective structure to execute an exit strategy. He simplified the structure where it would be more effective infrastructure for the purchaser to perform diligence and complete the transaction.
In advance we prepared a quality of earning analysis to determine the sustainability of net income, the condition of the financial records, to restate the financial information in accordance with GAAP, and define all weaknesses in the financial processes and procedures. We also analyzed the system of internal control and recommended changes that were implemented.
Throughout this process the client was preparing the facilities for the transaction. They modernized their equipment and expanded their equipment line. They also made sure all equipment was properly calibrated. They hired human resources for expansion and quality control. For their marketing process, they defined strategic customers that would increase profitability that generated recurring revenues. Their focus was on customers who had profitable businesses and had a need for high end product design.
Market timing was essential for this client. He was in the machine shop business. And in 2012 the market accelerated with an up-tick. He was prepared in all aspects of the business. His shop was organized, well equipped, and fully employed. His entity structure was simple, and his accounting had been cleaned up for due diligence. He was able to maximize price through the sell to a strategic buyer. He received a six-times multiple in a market where the average multiple was three-times.
The actual downturn started in 2008 and allowed this client to properly plan for a successful exit strategy. The transaction was actually completed in four months from the time the letter of intent was signed. Information was put in the Dropbox that allowed for a fast and efficient due diligence process.
Lastly, I was waiting in the parking lot when the client pulled in on the closing date. It was a rough day, because the buyer tried to reduce the working capital to lower the purchase price on the closing day. We were able to get through the day, and the client received a substantial wire transfer before 5:00 PM.