BKD Helps Investment Firm Close Nine Transactions
Author: Matt Klauser
Closing a transaction is an expensive, time-consuming challenge for a buyer—and it’s almost unheard of to simultaneously close nine transactions with 14 separate legal entities. However, when Kidd & Company wanted multiple closings, BKD was ready to help.
Connecticut investment firm Kidd & Company was considering an integration of several complementary companies in the logistics software industry. Its goal was to give parcel shippers a single software solution to help automate, improve and reduce the cost of parcel shipping around the globe. The platform consisted of 14 separate entities (with nine different sellers), each of which would have a separate purchase agreement closed on the same date.
In addition to the scheduling challenge, there was added complexity regarding presentation of the combined entities due to different accounting systems and charts of accounts. Many of the entities used a cash basis of accounting, creating yet another challenge. There also were numerous earnings before interest, tax, depreciation and amortization (EBITDA) adjustments proposed by management that required analysis, including a general ledger reconciliation.
Our first step was to organize the various charts of accounts to allow for consistent and comparable presentation of the entities. One of the benefits of this process was a clear presentation of revenues and margins by service line. We then began the process of estimating the cash to accrual conversion, including an estimation of generally accepted accounting principles (GAAP)-based adjustments such as deferred revenue.
Once we completed the cash to accrual analysis and remaining quality of earnings evaluation, we bridged adjusted EBITDA to free cash flow. Primary reconciling items were related to deferred revenue and expenses, capitalized software development and changes in accounts receivable. Completion of this analysis allowed Kidd & Company to simultaneously evaluate accrual basis EBITDA and cash flows and close all nine transactions on the same day as originally planned.
Dealing with Turbulence
With multiple entities—only one of which received an audit—this project had its share of turbulence regarding the financial reporting functions as well as the number and magnitude of proposed EBITDA adjustments. The chart below summarizes the effect of EBITDA and free cash flow adjustments, which allowed Kidd & Company to evaluate estimated GAAP-basis EBITDA compared to the various presentations provided by the selling entities.
In Their Words
“We were looking for a firm that could handle a multiple company integration transaction and were referred to BKD. The BKD transaction services team took time to understand the challenges of the transaction and proactively addressed them to ensure the project went smoothly. We became comfortable with their team and project approach and were truly pleased with the quality of work they produced.”
Gerry DeBiasi, Partner
Kidd & Company