Success Story - low angle woodworking

Larx Helps Enterprise Avoid Poor Investment

Challenge:
DETERMINE VIABILITY OF COMPANY ACQUISITION

One of the largest sawmills in the U.S., was looking for ways to reduce and/or reuse its wood waste. It decided to explore converting waste into firewood and found a potential acquisition opportunity in a company that sold consumer firewood products. They needed to determine if this acquisition was worthwhile.

Actions:
PERFORM DETAILED BUY-SIDE DUE DILIGENCE ANALYSIS

Larx Advisors was engaged to perform a detailed buy-side due diligence analysis. Unlike other consultancies, Larx offered expert guidance and excellent service at an affordable price point. The due diligence included:

  • Synergy modeling
  • Quality of earnings (QofE)
  • Balance sheet analysis
  • Income statement analysis
  • Customer analysis
  • Proof of cash
  • Working capital analysis
Results:
RECOMMENDED AGAINST PURCHASING THE COMPANY

After performing the detailed analysis Larx delivered a Confidential Information Memorandum (CIM) advising against an acquisition since research indicated it wouldn’t be a lucrative move. It made a recommendation to instead make new capital investment in sawmill equipment to reduce waste levels and increase margins. The larger family office behind the lumber company was impressed with the results and the bold recommendation to not purchase the company, so it engaged the Larx team in a sell-side preparation for another portfolio company.

Highlights

Challenge
Evaluate potential bolt-on acquisition that would allow company to generate new revenue from waste product.
actions
  • Performed quality of earnings and financial statement analysis
  • Analyzed strategic and financial synergies
results
  • Analysis resulted in a no-buy recommendation and pursuit of internal capital expenditures for innovation
  • Target company later hired Larx to provide sell-side representation
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