Due Diligence

Due Diligence Evaluations

When rapid assessments are required to confirm or identify opportunities and/or obstacles, Kestrel can quickly bring seasoned resources and a wealth of experience to bear on complex issues and evaluation of risks. Our extensive experience with Financially Stressed organizations and the framework of our Diagnostic Process makes us particularly efficient at rapidly evaluating the Turnaround Potential and risks and opportunities inherent in distressed assets and operations.

Selected Examples
Due Diligence Assignments

Manufacturer of Ladies Swimwear  

  • Retained by secured creditors to evaluate proposal by equity owner for “low-ball” buy-out of defaulted debt of a troubled company.
  • Within four days completed a business viability analysis which demonstrated higher value. Creditors subsequently negotiated a 50% increase in the buyout price.  

Financially driven roll-up of Industrial Roofing Contractors in six major cities.  

  • Retained by group of secured creditors to evaluate viability and value of businesses included in a failing roll-up. Reviewed operations of businesses in all cities including developing an understanding of various management agendas.
  • Concluded that entrepreneurial founders who were still in management control held all the negotiating power over the value of the business. Recommended quick exit which was effected by a Chapter 11 filing.  

Trucking – Bulk Liquids  

  • Engaged by prospective secured lender to assess value of collateral and adequacy of operating management and reporting controls.
  • Identified existence of reporting deficiencies and provided recommendations for required enhancements. Borrower declined to implement upgraded policies and practices and loan facility did not close. 

Medical Finance Company: Equipment Leases & Medical Receivables  

  • Engaged by major lender / investor to evaluate a potential discounted debt purchase or equity investment in a troubled situation.
  • Immediately identified accounting irregularities and asset valuation misstatements. Prepared operational and valuation analysis which became the basis for a D-I-P facility. 

850 Gas / Convenience Stores  

  • Engaged by company upon recommendation of senior lenders to assess proposed increase in borrowing capacity.
  • Business viability assessment and cash flow review confirmed reasonability of Company’s projections and forecasts. Led to successful debt refinancing and expansion of facility. 

Multi-plant manufacturer and distributor of Architectural Glass  

  • U.S. subsidiary of European conglomerate suffered major operating profit declines during construction industry recession. Retained by secured creditors to evaluate proposal to restructure debt. In two week period, reviewed operations of twelve plants.
  • Determined business was viable and well managed with potential for market share increases in a business upturn. Debt was increased and restructured; Company became highly profitable as the economy improved.

Multi-national manufacturer of Injection-Molded Plastic Auto Parts 

  • Engaged by secured lenders to (1) provide a “second opinion” on valuation and viability of business operating in Chapter 11 and (2) review the potential for a stand-alone Plan of Reorganization as an alternative to the sale under negotiation.
  • The possibility of an alternative Plan of Reorganization under new management was used to leverage negotiations and the sale was concluded promptly at a fair price.  

Mid-range Computer Manufacturer with significant European operations  

  • Retained by secured creditors to evaluate business viability and develop options for preserving value in the face of loan defaults and a major cashflow crisis. Project included on-site evaluation of subsidiary operations in seven European countries.
  • Although faced with the same unfavorable industry trends as U.S. operations, it was concluded that European operations were viable. A swap of secured debt for ownership of the European subsidiaries was negotiated. Assumed management of a holding company owned by the previous creditors.  

Automotive Service related Retail chain  

  • Retained by potential equity investor to perform due diligence in situation of significant operational uncertainty after resignation of Chief Financial Officer and other key employees. Commitment to project included supplying an Interim CFO.
  • Detailed due diligence was completed, significant organizational changes recommended and implemented and final financing negotiated. Equity sponsor subsequently exited within two years with highly successful investment return.  

Proposed Russian Investment Fund  

  • Retained by the management of a major group of public investment funds to evaluate opportunities for investment in Russian business enterprises. Held extensive meetings with the proposed local partner, a well known Russian investment bank, then visited and made overview evaluations of 15 potential target operating companies.
  • Major questions were raised about the future business viability and management controls of most of the potential investment targets. Subsequently, as the 1998 financial crisis in Russia began to develop, the project was aborted without commitment.  

Engineering, design and manufacture of Foundry Equipment  

  • Retained by secured creditors to evaluate business viability and cashflow projections of foundry equipment manufacturer whose customers were in an economic recession.
  • Concluded business was both viable and well managed; debt was restructured and the business regained profitability as external market conditions improved.