THE SITUATION
A middle market private equity fund was evaluating an investment in a national architecture and engineering firm. The firm operated multiple offices which reported under separate sets of financials and its projects were structured as fixed fee arrangements that were delivered over several months. While the business was performing well, its financials did not provide a clear picture of earnings. Revenue was recorded based on billings rather than when work was performed, creating variability in monthly results and making it difficult to understand true project profitability, working capital trends, and overall business performance. The sponsor expected some level of disconnect but needed a more reliable view of performance to move forward.
OUR APPROACH
Intrinsic was engaged to perform buy-side due diligence, including a full recast of project revenue based on percentage of completion accounting.
We recast revenue on a GAAP accrual basis by project, by month, using project-level hours data and calculated over- and under-billings across the diligence period. By working at the project level, we developed a clearer view of earnings and profitability by customer and by project type, along with a more precise position on working capital. That level of detail is critical in project-based businesses like this, and it’s often where value is won or lost.
We tailored the process to the management team, translating the analysis into something practical and usable without losing the rigor behind it.
Because the work was built from the ground up, it also positioned the company for what came next. The same analysis created a clean starting point for transitioning from a billings-based model to GAAP reporting post-close, with a seamless handoff across our team so the client didn’t have to manage multiple providers.
THE IMPACT
The work delivered a more precise view of earnings that directly influenced the transaction and gave management a better understanding of how their business performs. It supported the inclusion of overbillings collected in cash within indebtedness, resulting in several million dollars of incremental value to the buyer, while also providing visibility into project-level profitability and where pricing and margins could improve.
Just as important, the management team saw their business in a new way. The insights reinforced confidence in the deal and set a strong tone for the partnership with their new sponsor. The company left with a clear path to GAAP reporting and a stronger footing under new ownership, setting it up to perform more consistently and profitably over time.