Executive Summary

Following its transformational acquisition of a public company in the food processing equipment space, a publicly traded food and beverage technology company retained Stout to support a reorganization of its reporting structure and related audit processes.

The Client

A publicly traded food and beverage technology company that had recently acquired a publicly traded company in the food processing equipment space, substantially increasing its market capitalization.

The Work

Stout supported the company’s goodwill reorganization and related audit processes across three connected workstreams:

• Re-mapping and building reporting unit-level financial models, consolidated three-statement model, and investor relationship materials
• Strengthening the controls used to support forecast assumptions
• Performing the valuation analysis underlying a goodwill reallocation, including testing for impairment before and after the reallocation

The engagement was structured so a single fact base carried through all three workstreams, eliminating the redundancy in management’s forecasting preparation and review process.

The Outcome

A more defensible impairment analysis, a repeatable control framework for future testing, and audit-ready documentation.

How We Approached the Work

Value Strategy & Modeling Workstream

With an accelerated timeline driven by filing deadlines for publicly traded companies, we built Excel-based profit and loss models for each of the company’s newly defined reporting units. The models bridged revenue and adjusted EBITDA from the current fiscal year forecast through a multi-year horizon, with a reconciliation to net income and earnings per share.

We incorporated functionality for management to set assumptions on key drivers of the profit and loss statement (such as revenue growth rates, margins, and operating expense assumptions). We also built in the ability to project capital expenditures, net working capital, and the impact of tariffs and synergies expected from the combination of the two public companies, allocated across reporting units.

The company had separately engaged a global strategy consulting firm to conduct market research and develop growth initiatives for each reporting unit, including market penetration and commercial excellence, operational distinctiveness, cross-divisional collaboration, and prioritization of the company’s service offerings as a growth engine.

In light of the work with the consulting firm, we reconciled the consolidating output from our models to the company’s long-range plan and incorporated the results into a separate three-statement model used for internal planning and in senior management’s investor communications.

Controls Workstream

We helped the company build a structured process for testing the forecast assumptions used in its goodwill reallocation analysis. 

With limited historical information available under the Company’s new reporting structure, we worked directly with management (including leaders of the underlying businesses) to develop supportable assumptions for each reporting unit. For key forecast assumptions, such as expected growth, we identified and reviewed relevant third-party market and industry data to establish appropriate market reference points. We then worked with management to assess how those external indicators aligned with their expectations for the business and documented the rationale supporting the assumptions ultimately selected by management.

We applied a similar framework to other significant inputs to the analysis. This included documenting management’s evaluation of the valuation methodology and specialist, as well as key assumptions such as revenue and cost forecasts, comparable company selection and market multiples, company-specific risk premiums, capital structure, risk-free rates, cost of debt, weighted average cost of capital (WACC) weighting, and long-term growth rates.

The resulting controls and supporting documentation established a more structured and repeatable process for management to develop, review, support, and evidence the significant judgments underlying its goodwill impairment analysis. Importantly, the process reinforced management’s ownership of the assumptions and conclusions while providing a clear evidentiary trail to support the company’s financial reporting and audit process.

Goodwill Reallocation and Reporting Unit Analysis

As a result of the reporting structure reorganization, goodwill needed to be reallocated from three reporting units to five reporting units. We used the company’s trial balances by legal entity to map each entity into the appropriate reporting unit prior to and after the reorganization. The mapping process required detailed discussions with management on where specific entities should be assigned and why, including facts in place at the acquisition date and the intended go-forward operating structure.

We also helped connect the accounting implications of the reporting unit structure to the valuation analysis, including how legal entity balances and forecasts flowed into reporting-unit-level carrying values and fair values. 

After the forecast team developed projections by reporting unit, we helped provide the necessary pushdown to legal entities and analyzed how entities shifted from immediately before the test date to immediately after the reorganization.

Valuation Approach and Audit Support 

To support the reallocation of goodwill from the existing reporting units to the new reporting units, as well as assess whether impairment existed before or after the allocation, we prepared multiple fair value analyses using a variety of approaches deemed appropriate. We also prepared a market capitalization reconciliation to assess our fair value indications relative to the company’s market capitalization.

A key focus of the analysis was understanding the expected synergy plan and how synergies affected both the legacy and new reporting unit structures. We provided third-party valuation expertise, including market participant assumptions, experience with goodwill reallocation and impairment analyses, and audit-ready documentation to support management’s conclusions.

The Value Provided

Running the forecast, controls, and valuation workstreams as one coordinated process let the valuation and controls teams rely on the same diligence rather than asking management to answer overlapping questions.

The legal entity mapping work gave the company a durable foundation for future impairment testing, and the control framework gave management a way to explain not just which assumptions were used, but where they came from and how they moved through the forecast, cost of capital, and valuation analysis.

Under significant audit scrutiny, we gave the company a single, organized, audit-ready analysis connecting its accounting, forecast, controls, and valuation work.