The Company is a leading East Coast distributor of frozen seafood and related food products, serving a diverse customer base that includes Asian restaurants, grocery retailers, and foodservice distributors throughout the eastern United States. Since its founding in the early 2000s, the Company has achieved consistent growth through geographic expansion and the continued diversification of its product portfolio, establishing a strong market presence across multiple end markets and customer channels.

At the time of our review, the Company maintained a highly diversified customer base consisting of more than 2,400 active accounts, with restaurants representing the primary end market. Customer concentration risk was minimal, as no single customer accounted for more than 1% of total revenue. The Company's broad customer reach and recurring demand profile contributed to a stable revenue base and reduced exposure to the loss of any individual account.

The Target distributed approximately 1,000 SKUs across an 11-state footprint and had developed an extensive sourcing network comprised of more than 175 domestic and international suppliers. Its procurement capabilities included established relationships with vendors throughout North America and key international markets, including China, India, and Ecuador, providing access to a diverse range of seafood products and helping ensure supply continuity. The scale and breadth of the Company's supplier relationships, combined with its diversified customer base and regional distribution platform, positioned the business as a strategically important participant within the specialty seafood distribution sector.

Fort Dearborn Partners ("FDP") was engaged by a company for whom we were concurrently serving as turnaround advisor to perform buy-side financial due diligence for a proposed acquisition. The transaction contemplated a total purchase price of approximately $20 million, consisting of $14 million payable at closing and an additional $6 million payable in either cash or the acquiring company's equity. As part of the transaction structure, the buyer also agreed to purchase the Seller's saleable inventory at cost, with an initial payment equal to the lesser of $6 million or 50% of saleable inventory on hand at closing, and the remaining balance payable 25 days thereafter.

Given our ongoing involvement with the Seller's operational and financial restructuring efforts, FDP was uniquely positioned to assess the quality and reliability of the Target's reported financial performance. Through our diligence procedures, we concluded that management's financial statements did not provide a sufficiently reliable basis for valuation without significant adjustment and normalization. As a result, we determined that material variances likely existed between reported results and the underlying economics of the business.

Our review identified several factors contributing to elevated financial reporting risk. Most notably, Target maintained an affiliated entity whose operating results were never consolidated in the Company's financial statements, creating uncertainty about the completeness and accuracy of reported performance. In addition, the transaction was scheduled to close at fiscal year-end, before the completion and validation of critical year-end accounting adjustments, increasing the risk that reported earnings and balance sheet accounts did not fully reflect the Company's financial position.

The diligence process also revealed significant weaknesses in the Company's internal control environment. Deficiencies were observed across several key business processes, including order-to-cash, procure-to-pay, inventory management, bank reconciliation procedures, and the overall financial close and reporting cycle. Collectively, these issues represented the type of control weaknesses that could potentially constitute significant deficiencies or material weaknesses under a public company control framework, such as SOX 404.

Compounding these challenges was the absence of a formal sale process managed by an investment banker. The transaction lacked customary marketing and diligence materials, including a confidential information memorandum ("CIM"), management presentation, and independent third-party due diligence reports. As a result, the buyer was required to rely more heavily on independent financial analysis and diligence procedures to evaluate the Company's true earnings capacity and risk profile.

A key area of focus during our review was the Company's highly inconsistent gross margin performance, which fluctuated dramatically over the period, ranging from -19.4 % to +58.8%. Given management's inability to adequately explain these variances, FDP performed a detailed gross margin normalization and smoothing analysis, supplemented by a high-level cash flow assessment, to develop a more reliable estimate of GAAP-adjusted EBITDA. In addition, our diligence identified eight separate earnings adjustments necessary to arrive at a normalized Adjusted EBITDA that reflects the Company's ongoing operating performance.

Overall, FDP's analysis provided the buyer with a substantially more accurate assessment of the Target's earnings quality, financial reporting reliability, and operational risks. The diligence findings enabled the buyer to evaluate valuation assumptions more effectively, structure appropriate transaction protections, and make a more informed investment decision despite the Company's limited financial controls and reporting infrastructure.

FDP's diligence procedures identified several material earnings normalization adjustments that significantly impacted the Company's marketed financial performance. Most notably, our analysis uncovered critical cost adjustments that were not appropriately reflected in management's EBITDA presentation, resulting in a reduction of approximately 27.2% from the marketed EBITDA figure. These findings provided the buyer with a more accurate representation of the Company's sustainable earnings capacity. They enabled management to evaluate the transaction based on normalized operating performance rather than reported results.

By leveraging FDP's independent analysis, the buyer gained a deeper understanding of the Target's underlying economics, operational risks, and valuation considerations. The diligence findings informed negotiations, transaction structuring, and investment decision-making throughout the acquisition process. Ultimately, the transaction was successfully negotiated and completed, with FDP's financial analysis and strategic guidance playing a key role in facilitating a successful closing and helping the buyer enter the transaction with a clear understanding of the business's true earnings profile and risk-adjusted value.