CHALLENGE
The planned disposition of a subsidiary was not material overall to the seller. The business that was being sold had no historical PL or BS as it was part of a division. The carve-out was challenging because stand-alone financials were previously never prepared. The seller did not have sufficient financial information about the business for sale due to size and non-core business. Due to the insignificance of the business in relation to size, the Seller had never allocated certain corporate expenses to the business, including interest expense, corporate overhead expenses and income taxes and the information was not otherwise readily available and any allocation would be subjective and may not be relevant due to differences in corporate structures between seller and buyer.
APPROACH
The strategy for carving out the balances for the specific financial statement line items included revenue, expenses, inventory, fixed assets, intangible assets and employee liabilities.
Approaches included specifically reviewing contracts for licenses, and building up assets from various sub-ledgers. For revenue, identified specific profit centers, cost centers, and correspondingly for cost of sales isolated cost centers. In lieu of taking actual physical inventory, isolated externally from internally manufactured inventory through profit and cost centers. In addition, for employee liabilities identified employee plans to be included in the deal and used headcount to allocate liabilities and related costs.
RESULTS
Prepared final carve-out balances that were included in the Statement of Assets Acquired and Liabilities Assumed and Statement of Net Revenues and Direct Expenses. Prepared documentation to support the input data and carve-out adjustments. Addressed and responded to auditor questions and comments