The client was a steel service center and identified a potential acquistion of a steel fabrication company that filed for bankruptcy, due primarily to fraud/theft.

The Steel Service Center attempted to acquire the large customer.

The Steel Service Center was unfamiliar with acquiring a business out of bankruptcy and was concerned about the extent of the fraud and its impact on the future performance of the business.

The customer was a $40 million manufacturer of steel tubing for agricultural and industrial use; the customer operated out of two plants in the Midwest.

A material fraud (several million dollars) had occurred, involving former employees; as a result, inventories, sales and accounts receivable were materially misstated and historical data was unreliable.

FDP was engaged by the Steel Service Center 10 days before the bankruptcy bid date to perform due diligence and assist with development of the bid and APA response.

FDP’s review included:

–Detailed analyses and valuation of accounts receivable, inventories, fixed assets and facilities despite lack of credible information;

–Thorough assessment of operations, management, info systems and internal controls;

–Preparation of detailed pro forma financial statements that formed the basis for the offer; and

–Performance of an in-depth review of management’s cost accounting methodology and pricing strategies.

FDP’s recommendations included:

–A purchase price reduction of $1 million vs what the Steel Service Center had previously considered;

–Consolidation of 2 plants into one to reduce duplicate costs and unnecessary material transfers; and

–Immediate hiring of a new GM and Controller.

On short notice, Fort Dearborn mobilized an experienced due diligence team that, in three days, determined relative profitability, asset value and other significant operating issues.

The Steel Service Center was the successful bidder at a value of $1 million less than originally contemplated.