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Information Technologies Roll-up, Inc.

Scenario

The Company was a “roll-up” of four different government contractors in the Washington, DC metro area, acquired by a West Coast company. Each of the companies had existed for many years and served slightly different customers, had different operating policies and used different accounting systems.

As part of the post-merger integration process, the four companies were put on a single accounting system. However, the system was a complex one, difficult to install and set-up correctly, and difficult to operate. The company was unable to hire properly trained accounting and IT system personnel who knew how to install and operate the unique system and, as a result, errors were made. Although major installation and operational errors were located and resolved prior to CB&H’s engagement, there were large errors in the unbilled accounts receivable area that needed to be analyzed and corrected. After CB&H started working on the engagement, the parent decided to sell the company, making it imperative to fix the unbilled accounts receivable as quickly as possible so the company would be ready to withstand due diligence.

CB&H Action Steps

The company had attempted to fix the unbilled problems, using an approach which CB&H knew would take a significant amount of time and that would ultimately be unsuccessful in producing a due diligence proof analysis. CB&H convinced the CFO to follow a different approach so that each contract amount in the unbilled account was verified to source documents and could withstand a due diligence challenge. This approach had a significant advantage because it was focused on satisfying the upcoming due diligence.

Results

CB&H’s consulting team successfully met the client’s deadline and produced an analysis that met the acquiring company’s due diligence needs. As is typical in acquisitions, there were price adjustment clauses that could have resulted in a reduction of the selling price if the buyer’s due diligence uncovered accounting problems in the unbilled accounts receivable. By having CB&H “clean up” the unbilled accounts receivable, the company avoided what could have been a very large reduction in the selling price.