Success story:
Finding incorrect indirect cost allocations
Buy-side due diligence
Background
- Client was negotiating the purchase of an engineering firm that provided services to the U.S. Navy.
- The Target had a large percentage of cost plus contracts, and historical indirect rates were consistently less than provisional indirect rates.
Challenge
- Confirm the inception to date liability for billings in excess of costs incurred.
Solution
- Pipaya analyzed and compared historical accounting records, and DCAA incurred cost submissions to quantify the liability.
- Our analyses proved the liability was 70.2 percent higher than the accounting records indicated. This difference was equivalent to 12.3 percent of the current purchase price.
- Additionally, our process uncovered the cause of the discrepancy—an accounting systems conversion that did not carry forward legacy contract information into the new system.
Outcome
- The Buyer used this data to renegotiate terms, especially as they related to holdbacks.
- The Buyer ultimately walked away when the Seller was unwilling to accept these terms.
Success story:
Quality of earnings
Buy-side due diligence and transaction support
Background
- Client was negotiating the purchase of a Target that was unaudited and reported results on a modified cash basis.
- Target had a significant amount of non-recurring costs (“addbacks”).
Challenge
- Confirm historical and forecast earnings before interest, taxes, depreciation and amortization (“EBITDA”), used in valuing the business. Produce a comprehensive stand-alone due diligence report to share with the Board and Lenders.
Solution
- Pipaya converted the Target’s modified cash basis books so they were in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
- Confirmed the quality of historical earnings and the quality of forecast earnings.
Outcome
- Delivered a comprehensive financial due diligence report that validated earnings and further informed the client about the Target.
- Assisted our Client in converting Target financial records to the client’s Deltek platform, and co-developed and implemented the new indirect cost structure in the Deltek system.
