Stout provided buy-side financial services for a home builder expanding into land acquisition, land development, and lot sales. The company is headquartered in Charlotte, North Carolina, with sites throughout the state. The business acquires land and performs land development, and the land is then sold to home builders for residential neighborhoods and homesites.
The Stout Financial Due Diligence team performed quality-of-earnings analysis while the Stout Business Valuation team supported the client with modeling and the valuation. The company historically did not have a formal process for consolidating the financials and did not eliminate intercompany profit, which was a key finding during diligence.
In addition, a key focus area was revenue recognition. The company’s land development business performs construction services to level the terrain, build roads, prepare lots, and more. This business performs services over months/years for a site and recognizes revenue under the percentage-of-completion method of accounting. This accounting practice relies on significant estimates surrounding the cost to complete a project, and this was analyzed in diligence through a lookback analysis on jobs and recasting of revenue.
Post-acquisition, the Stout Financial Due Diligence team worked with management to prepare the true-up to the estimated funds flow, including procedures for testing the accuracy and completeness of the material accounting balances. This included reconciling the financials to the supporting schedules, testing selections, and proposing adjustments.
In addition, Stout’s Business Valuation and Accounting Advisory service offerings assisted the company in the purchase price accounting of the opening balance sheet. The engagement highlighted the collaboration among various Stout groups, cultivating into a successful acquisition for the client.