Management Buyout:
The KS Tax Advantage
Keiter Stephens assisted a local company's leaders in structuring a ($17 million acquisition) management buyout of the business. Performing due diligence on inventories, we saw an opportunity to allocate the purchase price to the "fair value" of inventory at an amount substantially higher than the seller's carrying value.

The stepped-up basis of inventory resulted in an $870,000 income tax deduction for the buyer in the first year, and margins returned to normal after the disposition of the acquired items. The resulting cash flows from the tax savings helped reduce the buyer’s line of credit.

Acquisition: Things Aren't Always as they Seem
A manufacturer and distributor of industrial parts sought to expand in North America by acquiring a company in the Southwestern U.S.

They identified their target and engaged us to perform due diligence procedures.

While our client contemplated a purchase price based on historical analysis of the target's asserted level of profitability, our special on-site procedures identified a number of issues that reduced the economic appeal of the proposed transaction.

As a result of our engagement, the client declined the opportunity to purchase the business.

Some of the findings that led to the decision:

- Revenue in one year under review had been overstated by over 42%.

- Certain assets were overstated.

- Gross margin was lower than originally calculated.

- Weaknesses in internal control were revealed. It was determined that the accounting system would likely have to be replaced, at a high cost to the buyer.