A private-equity fund specializing in energy services and manufacturing investments (“the Company”) was evaluating the acquisition of a privately held provider of spooling services in the Permian and Delaware Basin (“the Target”) to integrate with their existing portfolio.

The Company engaged Opportune professionals to perform financial due diligence procedures, including:

• Identifying non-recurring transactions, timing and cut-off issues, and non-cash transactions to evaluate the appropriateness of reported EBITDA.
• Analysis of historical revenues, gross margin, G&A, and EBITDA to understand trends and drivers.
• Cash-related procedures, including a comparison of monthly cash deposits and disbursements to reported income and expenses and a comparison of operating cash flows to EBITDA over time.
• Analysis of historical working capital fluctuations.
• Analysis of days sales outstanding and adequacy of the allowance for doubtful accounts.
• Understanding trends in growth vs. maintenance capital expenditure over time.

Opportune added value by leveraging its Transactional Due Diligence team to provide the Company with a clear and concise Excel-based deliverable, which demonstrated how we had addressed the agreed scope, summarized vital observations from our work and offered detailed schedules supporting our observations and proposed quality of earnings adjustments.

Specific areas where Opportune added value on this project include:

• The Target was utilizing the cash basis of accounting rather than the accruals basis of accounting. As a result, there were large month-to-month fluctuations in the Target’s revenue and expenses, distorting historical performance. Opportune made several adjustments to smooth the cost of goods and key expense categories, so they were more representative of expenses on an accrual basis.
• The Target had a significant revenue contract that was “take or pay” with the ability to roll unused capacity so subsequent months. Opportune rephased revenues to appropriately account for this arrangement.
• As many of the Target’s customers were in the E&P space, Opportune cross-referenced customers with outstanding balances against recent oil and gas bankruptcies to identify collectability issues.
• Opportune adjusted to EBITDA to reflect ownership structure post-acquisition, including adjusting salary and benefits for expected remuneration of owners retained as management.

Opportune’s output assisted management in its valuation discussions and highlighted areas of risk and complexity to support negotiations with the Target and integration into their portfolio.

Leveraging our Transactional Due Diligence practice, Opportune’s team of seasoned former Big 4 auditors, tax professionals, and industry experts bring the experience and tools necessary to evaluate a company’s earnings’ stability and persistence. When assessing the quality of an entity’s earnings, we consider the accounting practices, internal control environment, management experience, capacity to deliver on growth projections, macroeconomic influences, and cash flow stability.