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Do all debtors in arrears pay as stated on purchase? Are all inventories still usable and saleable at the expected margin? Acquisitions are very often accompanied by a final settlement of the purchase price. This often involves working capital.
It becomes more complex when there is a transition of services, systems or production. Claassen Moolenbeek & Partners has managed transitions and final settlement negotiations where all three transitions have taken place simultaneously. It is then important that the transition and integration have taken place within the reasonably agreed timeframe, so that the buyer can continue without disruption to the business process and customer service.
As an example from our practice, acquisitions have occurred where production could not be transferred directly from an ongoing production process to the intended location. The technology has to be properly understood and built up, and the people do not always move with it. Then, of course, you need to work together to transfer the knowledge. Production also needs to be as efficient as before the transfer so that deliveries can continue to be made on time. In practice, this means planning simultaneously for the dismantling of the old environment and the setting up of the new environment in sales, production, purchasing, supply chain and HR. The (financial) information systems should be set up so that, in addition to information from the transition project, key control and compliance information is available from the outset. This will also reveal any settlements included in the purchase price, such as cost variances. For all services during the transition, the manner in which settlement will take place is defined in advance.
Following the acquisition, an external auditor and (in the case of larger acquisitions) a valuation specialist are appointed in time for the end of the first reporting year to ensure that the whole thing is properly accounted for. A detailed summary of all banking transactions related to the acquisition is provided by the PE firm. This cash flow, the PPA report and the final accounts are used to produce the figures and documentation presented to the auditor as the basis for the financial statements.
