Background
For the past four years, Wolf & Company, P.C. has been working diligently with a private-equity backed Software as a Service (SaaS) company providing comprehensive financial statement audit, tax, and risk management services.
This client had been growing rapidly—with their revenue increasing by over 200% in a 3-year period. It also had a large international footprint, operating five foreign subsidiaries and performing multiple overseas acquisitions (most recently a $17 million acquisition in the UK). Given the breadth of the client’s international operations, the client required a firm that had significant experience running group audits and coordinating the work of foreign auditors, which is one of the reasons they initially started doing business with Wolf & Company.
Challenge
Recently, the client was approached by a potential buyer. This buyer was a publicly traded software heavyweight with a sophisticated management team on the tax and financial reporting side. It was also advised by a Big 4 firm—and satisfying their pointed inquiries was going to be key to the success of the deal.
Exit events can be daunting endeavors that require precise attention to detail, exceptional communication, and expert knowledge on the factors involved in the transaction. There were many moving parts that had to be coordinated and organized before the potential agreement between the buyer and the client could occur.
Due Diligence
The first step was navigating and successfully completing financial due diligence, as it was going to be critical to the success of this transaction. Management had ongoing conversations with the buyer’s representatives for several months, and during the buyer’s due diligence efforts, a wide range of questions were presented to management related to its financial and tax reporting.
In order to navigate the complicated web of this acquisition, the client needed a CPA firm, like Wolf, that had the expertise and experience to withstand intense due diligence, as well as the technical and financial wherewithal to respond to the difficult questions posed by the buyer’s management team and their Big 4 advisory firm.
SEC Regulations
Once the buyer decided to move forward with the purchase of the client, their first requirement was for the client to bring their financial statements into alignment with all of the rules and regulations set forth by the U.S. Securities and Exchange Commission (SEC).
On top of the new SEC reporting challenge, the buyer made a late request to accelerate Wolf’s audit field work during the busiest time of year. As if that weren’t enough, the buyer also required a quick turnaround review of the interim results for the first quarter.
Wolf was able to assist the client by utilizing their significant SEC expertise. Since producing audited financial statements was a condition for closing this sale between the client and the buyer, Wolf & Company prioritized the needs of its client and adjusted the project schedule to meet an earlier deadline. The audited financial statements—as well as an interim audit of the first-quarter financial results—were delivered on time and fully in compliance with SEC requirements.
Solution
The client needed Wolf’s support through the intricate technical accounting of the acquisition, and required a firm that was able to audit the annual financial statements efficiently and complete the work before the deadline. The client also required Wolf’s ability to provide advice on the appropriate financials needed to file with the SEC.
Result
During the due diligence process, the buyer, along with the buyer’s Big 4 advisory firm, raised questions in a number of areas. On tax matters, questions were asked about the client’s transfer pricing and sales tax practices, and also the implications of offshore intellectual property (IP).
Regarding accounting practices, equally complex discussions were held over revenue recognition—specifically, the ability to separate elements in a multiple-element arrangement—as well as the client’s preparation for their adoption of ASC 606, Revenue from Contracts with Customers.
Fortunately, Wolf had previously discussed these issues with the client’s management, so there were no surprises in the process. In order to assist management in its response to the client’s revenue recognition questions, Wolf produced a special-purpose white paper on the company’s policy and how it was consistent with Generally Accepted Accounting Principles (GAAP). Wolf was able to support the company’s positions, and satisfy the buyer and their due diligence firm.
Due to Wolf & Company’s exceptional, responsive, and expert assistance during this acquisition process, the client was able to close an all-cash sale for more than 7x their annual revenue.
Future Endeavors
Recently, Wolf received an email from the client’s CEO stating that, due to the success of their relationship with Wolf in the previous transaction, the client wished to engage Wolf’s services to aid them in another engagement—this time, an acquisition.
