Mergers & Acquisitions: Valuation of Inventory Assisted in Purchase Price Negotiation

The Client: A large manufacturer of offi ce products involved in a vertical acquisition of one of its primary distributors.

The Challenge: Under the terms of the acquisition agreement, the value of the target company’s inventory was a primary element of the overall purchase price.

The inventory included three main categories:

Raw materials used in production;

Items purchased for resale; and

Items purchased for both production and resale.

Adding to the complexity of items being purchased for both production and resale, was that the information related to usage, sales, and inventory was housed in three separate databases. Our client expressed general concerns regarding overstock and obsolescence. We were asked to substantiate the inventory value and provide our client with specifi c information to utilize as a bargaining tool.