What is Transaction Readiness?

Transaction readiness are those preparations made by a company before due diligence is performed by a potential investor and/or maximizing the presentation of a company to a potential buyer.

Many companies that seek to raise capital or be purchased have a vested interest to prepare and tune their operations long before due diligence begins.

Transaction Readiness Services

Transaction readiness services are typically performed by finance, accounting and operational experts. The areas of focus may include:

Strategy & Structuring Support

During the transaction readiness assessment, advisors will review if the strategy formation is clear, measurable and realistic. They will also review:

• Financial Assessment of Target Company (Buy-side)
• Confidential Memo & Pitch
• Review and Input
• Valuation Analysis – Business
  Perspective
• Negotiation Support
• Data Room & PBC Preparation and Organization

Clean-up / Pre Diligence

An enterprise’s financials are usually not ready for transaction review. Newer organizations, for example, may not be GAAP compliant. GAAP allows uniformity, ease of identifying financial statements, and the creation of a basis for comparison. Because all businesses using GAAP have utilized similar rules, financial reports are easier to understand and collate. Advisors may put the company through a Cash to GAAP conversion in their accounting standards.

Other technology and complex GAAP services to be performed may include:

• Software vs. SaaS Accounting
• Multi Element Arrangements
• Deferred Revenue Accounting
• First Time Audits
• Pre Diligence Clean up
• Working Capital Analysis
• Capitalized Software
• Accounting for mixed Debt & Equity Financings
• Preferred Stock Accounting
• Services/Time Tracking/ % Completion
• Cap Table and Liquidation Waterfalls
• Purchase Accounting
• Foreign Currency
• Consolidations
• Carve-outs

Additional value may be provided with calculations and insights made regarding:

• Departmental Margins
• Developing Forecasts

Working Capital Issues

Working capital considerations can be worked through, as well, including:

• Negotiating the LOI & SPA Terms
• Excluded Assets and Liabilities
  • Cash?
  • Aged A/R?
  • Employee Notes
  • Deferred Revenue?
  • Lines of Credit?
• Treatment of Identified EBITDA Adjustments
• Quality of the GAAP applied in Monthly Financials
• Seasonality Issues
• Deferred Revenue
  – What is the True Monetary Performance
  Obligation?
  – Customer Deposit vs. Deferred Revenue
• Growth Rate – Expected Changes in WC
• Adequacy of Reserves (Bad Debt and Liabilities)
• Estimating Closing Balance Sheet
• Modeling Working Capital PEG

Quality of Earnings Issues

It is important to understand if the earnings and revenue the company is representing is accurate.  Transaction readiness services help determine normalized, sustainable, and run-rate profitability.  Other items researched include:

• Non-Recurring Items:
  • Gains/Losses on Assets Sales
  • Large, One-time Sales
  • Transaction Costs
  • Large Legal Fees or Settlements
  • Start-up/Shut-down Costs
  • Turnaround Costs/Severances
• Normalizing/Run-rate Items:
  • Investigate Spikes
  • Pricing Changes/Staggered Pricing
  • Raises or Anticipated New Hires
  • Renegotiated Contract Terms
• Non-Cash Items
  • FAS 123R Expense
  • Allowances/Warrant Reserves
• Out of Period Timing Items:
  • Reversal of Accruals
  • Cut-off issues
  • Warranty Reserves