Know what the record shows before you commit.

• A target’s or borrower’s results look better than its industry’s, and the team wants to know why.

• Figures in the data room do not reconcile with the company’s filings or prior reporting.

• A public target’s history of compliance with its reporting obligations needs examining before closing.

• A borrower is approaching a covenant or a maturity it may not meet.

• A company in distress needs a restructuring plan that its lenders or its board can act on.

• Pre-close diligence.

  Reported results tested against the filings, footnotes, and underlying records, with particular attention to impairment and loss contingency judgments, related-party arrangements, and figures that do not reconcile from one filing to the next.

• Securities law exposure.

  For a public target, a review of its record of compliance with its reporting obligations, since any exposure stays with the company after closing.

• Borrower reporting.

  Covenant calculations and lender reporting tested against the borrower’s own records.

• Restructuring advice.

  For lenders or for the company: liquidity, the capital structure, and a plan that the record supports.  The firm acts for one side of a matter, never both.

1. 01

   Step 1: A confidential call.

   You describe the matter; the firm says whether it can help.

2. 02

   Step 2: A conflict check.

   Before it hears anything confidential, the firm confirms that it is not engaged with the company as an investor and has published no research on it within the past twelve months.  If a fund or account it manages holds a position in the company, the firm tells you, and goes ahead only with your consent and the approval of compliance and of a member of the firm outside the engagement team.

3. 03

   Step 3: An engagement letter.

   Scope, fees (fixed or hourly, with any equity in the company set out in full, and none contingent on a transaction closing), and confidentiality terms are set in writing.

4. 04

   Step 4: The examination.

   The firm works from the company’s record and the documents the engagement gives it access to.

5. 05

   Step 5: Findings.

   A written account of what the record shows, the questions an outside reader would ask, and what would answer them.

6. 06

   Step 6: Putting it right.

   Where the engagement covers it, the firm works with the client to carry the findings through.

Information about a target or a borrower is used only for the engagement.  Where a fund or account the firm manages holds a position in the company, the firm says so before the engagement begins, and goes ahead only with the client’s consent and the approval of compliance and of a member of the firm outside the engagement team.  For the engagement and twelve months after it, and for longer while the firm holds material nonpublic information about the company, no fund or account the firm manages trades in that company’s securities.  The firm reports what the record shows; the decision to transact or lend remains the client’s.

Hypothetical.  These describe the kinds of matters the firm takes on, not any actual client or engagement.

1. Margins that do not fit.

   A private equity firm is bidding for a packaging manufacturer whose margins are well above its peers’.  The firm traces the difference to a change in how the company capitalizes tooling costs, quantifies its effect on reported earnings, and shows how it appears in three years of footnotes.

2. A covenant at risk.

   A lender’s borrower reports covenant compliance by a narrow margin.  The firm rebuilds the calculation from the borrower’s records and identifies add-backs that the credit agreement does not permit.

3. A plan the lenders can test.

   A company in distress asks the firm to prepare a restructuring plan.  The firm builds it from the company’s own figures so that the lenders can check every assumption against what the company has reported.