Case Study - 8 June 2022

Case Study – Hilco Diligence Services

Providing the evidence – how Hilco’s diligence services helped attract investment funding

Greg Hardiman

Strategic M&A transactions and acquisitions are rarely straightforward. However, diligence that provides practical insights, uncovers insights and removes obstructions can create a win/win scenario so that private equity, lenders and the target company all benefit.

In this case study, we explore the relationship between our client, a Private Equity Fund Manager and its relationship with a logistics giant, with the Hilco team delivering an independent diligence services assignment.

Rebuilding Great Businesses

Our Private Equity Fund Manager client specialises in investing to rebuild great businesses. Their focus is on transforming operational performance and creating value in companies that are currently struggling but have turnaround potential. One such company, was one of the largest providers of time sensitive freight and freight forwarding services in Australia and New Zealand. Seeing the potential, our client planned to acquire and transform the business.

Their top priorities were to attract investment from funding partners and to identify improvement opportunities. They identified the Accounts Receivable asset class to leverage and required a detailed, independent diligence exercise to confirm the availability of the receivables and construct a borrowing base. For this highly specialised requirement, they needed in-depth expertise, and turned to Hilco Global.

Delivering the evidence

Hilco completed a deep dive into the accounts receivables, drawing on experience working with many global organisations with multiple operating companies, multiple lines of business and across international jurisdictions. The result was detailed evidential data that provided our client with three essential outcomes:

  1. It identified the level of funding available against AR.
  2. It found working capital improvement opportunities and M&A synergies that proved the potential for transformation.
  3. It provided evidence of future potential funding levels that would likely be available to the acquired target.

Hilco’s diligence approach

  • Cash management – Our team performed detailed testing including cash application tests and assessed cash application procedures, demonstrating the opportunity to improve the overdue cash collection process.
  • Working capital – During discovery, our team uncovered working capital vulnerabilities in the Accounts Receivable (AR) cycle. We identified opportunities to improve parts of the working capital cycle that if implemented would act as an enabler for future growth without impacting cash at bank or requiring additional sources of funding.
  • Proof of delivery – The diligence team uncovered proof of delivery (POD) documentation issues, which if rectified would dramatically increase the borrowing base and therefore the working capital available.
  • Order to cash – Hilco’s diligence provided insights that helped improve order-to-cash (O2C) business processes, the linkages to debtor days outstanding (DSO) and ultimately receivables performance improvements. They identified operational levers for efficient performance, and ways to eliminate delays that had previously impacted working capital. and debtor days.

The insights uncovered by Hilco had a positive impact on transaction decisions and strategic approach post settlement.

  • Our Private Equity client was able to identify and prioritise the areas of improvement that related to working capital in the business.
  • They were able to act rapidly and position the business with additional options in their capital structure.
  • Hilco’s insights provided an opportunity to achieve millions in annualised savings through immediate and longer-term actions.
  • The release of additional working capital expected from improvements would allow the business to focus on growth initiatives and further performance improvement initiatives.
  • Hilco provided answers that were critical to ensuring that the borrowing base was formulated correctly giving confidence to supporting lenders.

Making a difference

In business, the ability to frame a problem is important, but the real value comes from being able to develop a solution. In carrying out this deep-dive diligence on the acquisition target Hilco did both.

Raising capital or sourcing debt is a challenge, especially when there is inherent uncertainty surrounding liquidity and cash run rates. Hilco’s diligence and recommendations made a material difference in helping our client attract supporting investment for this acquisition. Our insights assisted them in securing receivables funding which ultimately facilitated the business transformation.

Hilco APAC is a trusted partner in the valuation of tangible and intangible assets and the verification of these assets for a wide range of lending, financial sponsoring and strategic business activities. We work with clients who need our independent, accurate and time-critical reports to help manage their critical financial decisions and negotiations.

Find out more about we assist lenders and investors with a range of diligence services by contacting our team today for a confidential discussion.


Contact our APAC Diligence Services Specialists

Published: Hilco APAC