05.24.16

Buy-Side Due Diligence for Washington, DC Based Government Contractor

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Business Issue

Our client is a publicly traded government contractor focusing on environmental, engineering, and construction services for the Federal government. The Company’s growth plan includes acquisitions of complementary businesses and those that would diversify their current service offerings within the Department of Defense.

The target in this transaction was a service disabled veteran owned small business that provides environmental, facilities, and logistics consulting services to federal, state, municipal, and commercial clients. The acquisition was transformative as it increased our client’s revenue by over 30% and provided a stronger footprint within the Department of Defense. Based on our significant experience on similar engagements, we were hired to provide financial due diligence on the Target. Our scope of work focused on the Target’s accounting policies and procedures, contract profitability, and the identification of balance sheet risks impacting the working capital peg and purchase price.

Riveron Approach

Our process focused on stakeholder interviews, questionnaires, and detailed data-driven financial analyses of the P&L and balance sheet to analyze the target’s accounting policies and assess balance sheet risk. Using a comprehensive sampling methodology, we performed a deep dive into contract profitability and analyzed the target’s policies and procedures surrounding financial management of billable costs. Despite our client’s accelerated timetable, we were able to provide a cohesive and concise deliverable and distribute our report ahead of schedule.

Benefit to our Client

We identified key working capital, purchase price, and integration issues through our detailed analyses that provided significant fuel for our client during negotiations. Given the Target’s small size, a sophisticated financial infrastructure did not exist and estimates-at-completion were not accurately prepared. We calculated historical and forecasted profitability for over 30% of the Target’s revenue, arming our client with the necessary detail to validate profitability and successfully finalize the transaction with the Target’s management.

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