At CMF, we have noticed a significant uptick in buyer interest in carve outs as a response by middle-market private equity groups to find investment opportunities at the right price. On the sell-side, companies are looking to divest non-core business segments in order to generate a significant return in a frothy M&A market and focus on their core.
These fast-moving carve-out situations can be complex and audit readiness is a risk for CFOs and auditors alike; in a carve out situation, the risks can be significant. Complexity can arise from the fact that:
- Carved out divisions typically do not have stand-alone balance sheets
- Certain corporate expenses might not have been passed down to the division, impacting stand-alone margins
- Technical accounting issues are pervasive
- Complete financials and footnotes for the division will need to be created, generally from the ground up
- The manpower and bandwidth required of management and audit teams are substantial
How Can CMF Help with Audit Readiness?
- Project Management: CMF has experience working cross-functionally with the following groups: corporate finance, divisional finance, HR, legal, and internal and external audit; we know how to identify issues, map out resources, develop a plan, and manage it to complete the audit
- Technical Knowledge: CMF can create divisional stand-alone balance sheets, fully allocated and supportable income and cash flow statements, and footnotes; we also have strong technical capabilities to craft white papers and develop new, stand-alone accounting policies that are in accordance with GAAP
- Contingent Resources: CMF has Controller and Analyst-level resources available to augment a Company’s existing finance department
- Visibility: We surface issues as soon as possible and resolve them in cooperation with the company and the auditor, enabling internal staff to focus on day-to-day operations, auditors to focus on efficient and timely completion of audits, and shareholders to have the confidence that it will all come to closure soon.
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