distributor of plant-based snacks, functional ingredients, and gourmet seasonings

The Buyer was a private equity firm focused on investing in middle-market food, beverage, and ingredient companies seeking an acquisition in the "better-for-you" food segment to complement its current capabilities in the freeze-dried food segment.

The Seller/Target was a pioneer in superfoods and better-for-you products and a leading brand in plant-based snacks, functional ingredients, and gourmet seasonings.  Sourcing its materials from a network of international suppliers, Target transforms these ingredients into finished packaged goods at its sole facility located on the West coast.

Target sells its products in more than 9,000+ stores nationally and has revenue of over $23 million.

FDP was engaged to provide pre-acquisition due diligence, excluding tax due diligence analyses, related to the Target, and prepare a pre-acquisition report focused on quality of earnings, timing and risks related to cash flows, quality of assets, and identification and quantification of potential financial risks and exposures

After receiving access to the data room and meeting with Target/Seller management, FDP focused on reviewing the accounts receivable and inventory.

FDP identified significant financial concerns with respect to trade receivables, inventory, and the adequacy of trade program accruals.

FDP also encountered concerns with the inventory, noting the lack of physical inventory at fiscal year-ends, slow-movement and obsolescence concerns for many items, and concerns over how much the inventory could finance.

The Seller-presented borrowing base appeared to be out-of-market with the terms offered by normal ABL lenders.

Detailed substantive testing was performed on the A/R to better assess the situation and additional procedures were performed on inventory.

FDP also analyzed many of the management EBITDA add-backs and determined they would not be relevant to the go-forward EBITDA of the Company.

Based on the findings, FDP cease further pre-acquisition work at the request of the private equity firm.

As a direct result of FDP's findings, the private equity firm withdrew from further pursuit in the near term in order to re-evaluate its investment decision in Target.

FDP's findings allowed the private equity firm to reassess the proper valuation of the Target and to evaluate the additional time and resources that would be necessary to address the near-term accounting and finance needs of the Target.

While the transaction was ultimately not consummated, the private equity firm avoided a potentially bad investment in the Target.