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M&A Hot Topic: Avoiding Pitfalls in Working Capital Adjustments and Earnout Provisions


Speaker(s): Charles K. Blank, Erik C. Lioy, Zachary S. Snickles
Recorded on: Oct. 20, 2016
PLI Program #: 197329

Erik Lioy is the national managing partner of Grant Thornton LLP’s Forensic  Advisory Services practice. Prior to his national leadership role, Erik held local and regional leadership roles within Grant Thornton.

Experience

Erik has extensive experience advising buyers and sellers in post acquisition disputes regarding the calculation of working capital, net equity, earn- outs and other contingent consideration calculations. In addition, he has served as a court appointed expert and arbitrator in a post acquisition dispute matters.

Erik’s case work also includes providing financial due diligence and structuring advice to strategic and financial buyers. He has experience negotiating acquisitions, preparing closing balance sheets and integrating target companies.

Erik has provided expert testimony and issued expert reports on damages and various accounting, business and financial matters including post acquisition disputes. Prior to joining Grant Thornton, Erik practiced with a forensic accounting and consulting firm. He has also held senior financial appointments with companies where he was responsible for financial reporting, analysis and acquisitions.

Practice areas

  • Forensic and investigative services
    • Internal investigations
    • Board investigations
    • Asset tracing
    • Government/regulatory matters
    • Fraud prevention and detection
  • Litigation and dispute services
    • Arbitrator/neutral assignments
    • Contract disputes
    • Damages analysis
    • Expert testimony
    • Lease disputes
    • Partnership disputes
    • Purchase price disputes

Education and professional credentials

University of Pittsburgh, MBA Duquesne University, BSBA
Certified Public Accountant, NC License 30969 Certified Fraud Examiner (CFE)
Certified in Financial Forensics (CFF)
Certified Construction Auditor (CCA)
Certified Global Management Accountant (CGMA)

Representative post-acquisition dispute assignments

  • Served as a court appointed expert in a post-acquisition dispute between a publically held company and the selling shareholders of a software and consulting company. Work performed included interviewing current and former employees of the target company, investigation of travel records and evaluation of revenue recognition for software sales and services. Rendered expert report and provided deposition testimony regarding the proper calculation of three year earn-out provision in a purchase agreement.
  • Served as a neutral arbitrator in connection with a closing working capital dispute between the buyer and seller of a software company. Disputed items included reserve for bad debt, contingent liabilities and revenue recognition.
  • Served as a neutral arbitrator in a post-acquisition dispute between a public software company and a private equity group. The dispute involved the determination of a closing working capital purchase price adjustment. Disputed items involved revenue recognition, valuation of accounts receivable, accrual of payroll cost and accrual of other operating expenses. A binding reasoned award was issued.
  • Served as neutral arbitrator in a post-acquisition dispute between a manufacturing company and individual selling shareholders. The dispute over the final purchase price adjustment involved several items in the closing balance sheet including valuation of accounts receivable, inventory and construction-in-process. A binding reasoned award was issued.
  • Served as neutral arbitrator in post-acquisition dispute related to the acquisition of a contract research organization. Dispute included revenue recognition issues for multiple contracts. A binding reasoned award was issued.
  • Served as neutral arbitrator in connection with a dispute regarding the closing balance sheet and related purchase price adjustment from the sale of a post-secondary professional training academy. Issues arbitrated included accounts receivable valuation, revenue recognition and various accrued operating expenses. A binding reasoned award was issued.
  • Served as neutral arbitrator in connection with post-acquisition closing working capital dispute for a technology company. Issued bidding reasoned award.
  • Provided expert reports and testimony at arbitration in connection with the acquisition of a hospital. Arbitrator ruled favorably in 4 of 5 disputed items (valuation of receivables, accrual of Disproportionate Share Hospital (“DSH”) receivable, and other working capital items) and awarded our client prevailing party.
  • Provided expert report and testimony at arbitration on behalf of client in connection with the acquisition of a manufacturing facility. Dispute involved valuation of inventory including cost accounting issues and reserves for damaged, obsolete and excessive inventory. Matter settled favorably following testimony.
  • Served as consulting expert in multiple post-acquisition disputes regarding determination of working capital purchase price adjustments and claims under rep and warranty clauses of purchase agreements.
  • Assisted arbitrators in conducting accounting research, analyzing claims and drafting reports in numerous post-acquisition disputes.


Experience

Mr. Snickles has spent his entire career in professional services and has expertise in both litigation support and forensic accounting matters. He also has extensive experience assisting clients in post-acquisition purchase price disputes in both a consulting capacity and neutral capacity. Prior to Grant Thornton LLP, he worked in the Core Assurance Services practice followed by the Fraud Investigation and Dispute Services practice of Ernst & Young LLP.

Litigation support and forensic accounting engagements

  • Litigation consulting and strategy
  • Economic damages calculations
  • Expert report preparation
  • Expert testimony preparation
  • Fraud investigations
  • Forensic interviews
  • Electronic document reviews
  • Forensic data analytics
  • Regulatory consulting and monitoring
  • Alternative dispute resolution
  • Malpractice defense
  • Post-acquisition purchase price disputes

Post-acquisition purchase price dispute experience

  • Global service companies – Retained as arbitrators for binding arbitration to prepare final determinations of working capital and purchase price. Issues involved:
    • International Financial Reporting Standards (IFRS);
    • determination of Earnings Before Interest and Taxes (EBIT);
    • shareholders’ equity accounts; and
    • calculation of final payment. 
  • Medical device manufacturer – Retained as arbitrators for binding arbitration to prepare final determinations of working capital amounts. Issues included:
    • appropriate recognition of assets and liabilities;
    • inventory valuation;
    • accounting for deposits received;
    • GAAP consistently applied vs. contractual language; and
    • apportionment of arbitrator fees.
  • Retail building suppliers – Retained as arbitrators for binding arbitration between two retail building suppliers, one in bankruptcy. Multi-million dollar disputed items included:
    • determination of inventory lower of cost or market (LCM); and
    • GAAP consistently applied.
  • Medical equipment manufacturer – Retained in a consulting role for a multi-million dollar post-acquisition earn-out payment dispute between a Fortune 500 Company and private enterprise in the medical equipment business. Issues related to:
    • interference;
    • revenue recognition;
    • expense allocations; and
    • determination of the earn-out amount under a purchase agreement.
  • Food manufacturer – Retained in a consulting role for an international public company to assist in crafting multiple submissions in a multi-million dollar working capital dispute involving the purchase of another entity. Issues related to:
    • accounts receivable reserves;
    • inventory valuation; and
    • accrued liabilities.
  • Airline industry – Retained in a consulting role for the seller of a regional airline carrier regarding a claim against them for allegedly breaching the representation and warranty passage of the purchase agreement related to interim financial statements being prepared in accordance with GAAP. Issue included:
    • inventory valuation;
    • asset impairment; and
    • materiality of alleged misstatements.
  • Cosmetic industry – Retained in a consulting role for the seller of a cosmetics brand to assist in crafting multiple submissions in a multi-million dollar working capital dispute. Issues involved:
    • inventory valuation; and
    • accrued expenses.

Separate of his litigation support, forensic accounting and post-acquisition purchase price dispute experience, Mr. Snickles has performed financial statement, SOX compliance, federal funding compliance and IT attestations for multiple clients in a wide variety of industries. Additionally he has performed transaction advisory services, business consulting services as well as restructuring and turnaround services for many different clients. 

Licenses, certifications and professional affiliations

  • Certified Public Accountant (Arizona, Illinois)
  • Certified in Financial Forensics (CFF)
  • Certified Information Technology Professional (CITP)
  • American Institute of Certified Public Accountants
  • Association of Certified Fraud Examiners
  • Arizona Society of Certified Public Accountants

Education

  • Master of Science in Accountancy (Cum Laude) – University of Notre Dame
  • Bachelor of Science in Management Information Systems and Entrepreneurship (Magna Cum Laude) – University of Arizona

Presentations & publications

  • “Contractual Accounting Language: Trouble Spots and How to Avoid Them (2016)
  • “Exposing Fraudsters Using Profiling and Forensic Data Analysis” (2016)
  • “New Era of Data Analytics” (2016)
  • “Forensic Interviewing” (2016)
  • “Bribery and Corruption Risks” (2013)
  • “Enron…10 years later” (2011)


Charles K. Blank has over twenty years of experience providing accounting and litigation and dispute consulting services to clients.  Charles advises clients on matters involving complex accounting issues under US GAAP and IFRS and has assisted companies with technical accounting consultations, post-acquisition disputes, forensic investigations, damages analysis, and implementing new accounting standards.

Charles has been qualified as an expert, reported to in-house and outside counsel,  boards of directors, senior management, and auditors. The financial and forensic accounting investigations that Charles has led have included those involving white-collar crime and whistleblower allegations. Also, he has acted as a neutral arbitrator and provided expert and consulting services on numerous post-acquisition disputes involving working capital, earnouts, and representations and warranties claims.

Prior to joining Grant Thornton, Charles was a Director in the Accounting and Financial Consulting Practice at Huron Consulting Group. Previously, he was an Audit Manager in the Technology, Media and Telecommunications practice with Deloitte & Touche LLP serving public and private companies and he was also an Analyst at Moody’s Investors Service where he analyzed the impact of accounting on fundamental credit analysis used to determine issuer credit ratings.

Professional qualifications and memberships

  • Certified Public Accountant (New York)
  • Chartered Financial Analyst
  • American Institute of Certified Public Accountants
  • New York State Society of Certified Public Accountants

Education

Northwestern University, Bachelor of Arts – Economics