Investigated financial misrepresentations in private equity deal

Investigated financial misrepresentations in private equity deal

Expert Opinion - Transaction Dispute

A private equity fund acquired a company for in excess of $250 million based on the selling shareholders’ representations and warranties regarding earnings levels and customer relationships. After the transaction closed, the private equity fund discovered the company’s earnings were materially overstated and that certain customer relationships were tenuous at best. The private equity fund filed an insurance claim for breach of representations and warranties and sued the selling shareholders to recover over $50 million of overpayment related to the alleged misrepresentations.

The private equity firm engaged Stout to investigate the misrepresented financial statements and determine the overpayment for the acquisition. Our forensic accounting experts analyzed the company’s financial statements and helped to restate the financial results on an accurate basis. Using the actual financial results of the business, our valuation experts determined the true value of the company and the resulting damages associated with the overpayment.

Stout’s experts prepared analyses and reports to help the private equity fund negotiate with the insurance company and the selling shareholders. Based on our work, the private equity fund obtained a very favorable settlement.

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