Fishing in your product (pricing) for Hidden Liability

Selling your company
As some prepare to sell their company they go through a routine to maximize their profit, clean up returns, collect all the DSO’s they can, and many make it a point to collect as many SPA’s as possible.

They take the time to ensure that their manufacturer relations are good and so to speak have their blessing. Some will try and clean out all the slow moving inventory.

The Acquiring company
Typically the acquiring company makes provisions to double check your inventory before the sale is finalized. More than likely the acquiring company reserves the right to check or re-check the inventory for value. Some of the more knowledgeable acquiring companies will look at a minimum of one year’s worth of sales to look at:

How much gibberish is in the sales history data
Run some numbers to verify different ratios to make sure they match up with what is being offered for sale.

The hidden Liability
Within the past 5 years or so, I’ve been fielding calls about SPA/Rebate Liability and how to measure it. This very real liability that stems from the selling distributor “jumping a better SPA/Rebate” that a manufacturer reserved for say a Master Distributor. All of this is done without prior authorization from the manufacturer. In the electrical channel there have been some notable pay backs to manufacturers over the years.

Some manufacturers run SPA/Rebate audits more frequently than others and the smaller the manufacturer’s sales with your company the less likely they will audit.

But if you buy a company and discover that the SPA/Rebate is NOT allowed and all of a sudden the company is on the hook to pay back the false claims? How do you guard against it?

With growth and an increase in real (organic) sales hard to come by the practice of “jumping another distributor’s rebate” will probably increase. And to bear that out it has come to light that there are at least two rather larger electrical distributors that are currently undergoing SPA/Rebate audits.

But if you are trying to sell your company, do you know if you have a hidden SPA liability that might keep your sale from going through?