Buyer was a national ESOP-owned distributor of specialty products with annual revenue above $2 billion.  Customers included widely recognized retailers and a variety of independent stores.

Target was a major West coast organic food distributor with revenue of $700 million.

FDP was hired to provide a Quality of Earnings (QofE) and assets review, assess EBITDA adjustments and evaluate potential synergies with Target.

Fort Dearborn provided financial and accounting due diligence services for the Buyer.  Our due diligence services included:

–  QofE assessment including an evaluation of management's EBITDA add-backs and adjustments;

–  Identified the use of vendor income to 'smooth' earnings when unexpected expenses occurred or when desired at year-end;

–  Normalized earnings to eliminate the impact of a 53-week year, to ensure comparability between the years under analysis;

–  Reviewed the independent accountant's work papers and identified several areas where the auditor's materiality threshold was set too high or balances were not tested over several years, all of which led FDP to question the effectiveness of the audit procedures;

–  Quantified the impact to earnings, as well the as balance sheet, when Targe changed its accounting of certain equipment leases from operating to capital;

–  Analyzed working capital balances including movements in reserves, aging, the composition of balances, historical write-offs, and valuation; and

–  Analyzed all assets and liabilities and determined which would be acquired as part of the transaction.

Despite limited access to certain records and key personnel, Fort Dearborn identified several adjustments to EBITDA and working capital which led to a reduction in the purchase price.

FDP identified several accounting policies that were not consistent with GAAP.  FDP quantified the material distances and adjusted EBITDA accordingly.  

Based on our recommendations, several of Target's accounting policies were changed post-transaction.