Providing the evidence – how Hilco’s diligence services helped attract investment funding
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:
It identified the level of funding available against AR.
It found working capital improvement opportunities and M&A synergies that proved the potential for transformation.
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.
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.
Greg is regarded as both a highly effective business executive and market leader in developing the right solution for clients. Well known for his calm and thoughtful approach, combined with his ability to interpret financial information with judgement involving the most complex situations, Greg aims to find a creative pathway to the right solutions for his clients. Clients know Greg drives outcomes that consider their wider business objectives.
Andrew brings almost 20 years of business development experience in his tenure of his professional career. He has an in-depth knowledge of origination and strong financial oversight in structured financing and corporate lending. Andrew has been responsible for originating corporate financing solutions, managing client portfolios, developing strategic relationships, negotiating contract terms and conditions, underwriting and financial analysis for many complex Asset Based Lending (ABL) and commercial transactions. Prior to joining Hilco, Andrew most recently served as a sales leader with HSBC and previously held business development and originations positions at GE Capital where he was responsible for Asset Based Lending solutions.
Shawn is Melbourne based and works within the Valuation Services team focusing on Diligence and Collateral Management. With over 10 years of auditing expertise, having worked for public practice, NAB and a number of debtor finance companies, Shawn has been able to build a reputation as a risk professional and specialist in auditing cash flow finance/receivables. We are excited to have someone of Shawn’s calibre into our local Valuations practice.
When he’s not busy auditing accounts, Shawn is an avid tennis player and assistant tennis coach for Tennis Australia.
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