Case Study: LCG Works with Investment Banks Behind the Scenes on Transactions

By Ryan Murphy, Managing Director

Objective

LCG Advisors was tasked with conducting a sell-side quality of earnings (QOE) analysis for an investment bank aiming to sell a company specializing in facilities maintenance and light construction.

Process

In getting up to speed on the engagement, LCG’s QOE team learned that the company’s leadership was exceptional at sales and focused primarily on driving revenue. They also learned that, like many growth-focused companies, financial operations were not a top priority, particularly with financial controls and working capital management.

Given the desire to maximize value and minimize the potential for disruption, the QOE team recommended elevating financial operations in the list of priorities and consulting with LCG’s Strategic Financial Consulting (SFC) team to advise on necessary improvements. This preparation was crucial for painting an accurate picture of the company’s performance, establishing and improving key operational processes, and ensuring a smoother transition post-sale.

Approach and Outcome

The SFC team organized and refined financial records and management reports as well as streamlined financial processes. This groundwork allowed the company to re-enter the sell-side QOE process with a clearer and more credible financial picture. The improvements were significant:

Overcame a Bad Factoring Arrangement: LCG identified and resolved a poor factoring arrangement that was hindering cash flow.
Improved Cash Flows: By addressing the factoring arrangement and reducing collections issues, LCG significantly enhanced the company’s cash flows.
Enhanced Financial Controls: Tighter expense controls were established, ensuring better financial management.
Smoother QOE Process: The refined financial records facilitated a much smoother QOE process, allowing LCG to highlight the company’s improved financial health and identify additional add-backs.

These improvements made the company more attractive to potential buyers and led to a smoother transition post-sale. The investment bank successfully identified a buyer and pushed forward with the transaction, confident in the quality of the company’s financials.

Conclusion

LCG’s strategic guidance, combined with the resources and expertise to quickly take action, enabled the investment bank to present a compelling, accurate financial picture of the company. This case models LCG’s proficiency in transforming financial processes and enhancing business value, making LCG a trusted partner for investment banks navigating complex transactions.

For inquiries regarding Quality of Earnings, contact Ryan Murphy at [email protected].