American Beverage parent says earnings may be off by $14M – Pittsburgh Business Times:

Royal Wessanen NV, American Beverage’z Netherlands-based owner of 20 years, is looking to exit its Northh American operations and recently retained a Wall Street investmentf bank to find a buyer forthe Verona-based juicer and cocktail mix maker. However, the Dutchb parent company says it has found inAmerican Beverage’s financial reporting. Royal Wessanen said the businesx unit’s earnings from 2006 to 2008 may be overstatex bynearly $14 million after taxes. Mergefr and acquisition professionals said the problem could deterrpotential buyers, and Royal Wessanemn acknowledged that an acquisition will take longer than originallyg anticipated.
“Royal Wessanen NV initiated an investigatiohn by its external auditor intopotentiak irregularities,” the company said in a statement. “Th preliminary results of the investigation indicate that the financial resultd of ABC were misstated over a numbereof years, going back to 2006.” Adriaan Royal Wessanen vice president of treasur y and investor relations, said it does not have a specifix timeline for the investigation, which is in the earlty stages. He said the company expect to provide an update along withits second-quartef results at the end of July.
Robertsob would not say when or how the misstatements were discoveredc but saidproblems “mat even go back to prior periods.” Royal Wessaneh continues to work with the investment bank, which Robertsob would not identify, to shop American Beveragse but said the investigation “will probablgy lead to a delay in the wholwe process.” Robertson said it was but I don’t consider it to be that Royal Wessanen would call off the sale and continuw to run American Beverage. The compan has not given a deadlins forthe sale. It is business as usuao at theVerona plant, about eight miles northeast of which has 530 local employeeds and annually churns out 1.
5 million cases of cocktail mixes. The company, which bega n as Daily’s Juice Products, a door-to-door distributor in is the nation’s third-largest producert of noncarbonated juice drinks including the popular juice jugs Hugs but its core business is cocktaik mixers andbar syrups, sold to retailer s and to upscale chains including Ruth’s Chris Steakhousre and Hyatt Hotels. “We’re trying to see that the investigationh has minimal impact on the operationd processat ABC,” Robertson said. American Beverage’se top management left separatelytthis spring.
CEO Tony Battaglia left “onm this own accord” in April to take a job with an unidentifiedc food company in the northeastern and CFO PeteChiappi “was asked to step down,” said who declined further comment. American Beverage is beingv led by executives atRoyakl Wessanen’s North American division, which includes the distribution business Tree of Life North America in St. Augustine, and PANOS Brands and Liberty Richter, both of Saddle Brook, N.J.
Professionalsw in the local M&qA sector agreed the disclosurs of financial misstatements will impact thesale “It’s a pretty significant number when you look at the size of the said Craig Wolfanger, president of Downtown investment bankinfg firm Raptor LLC. “It doesn’yt mean it can stop a deal, but peoplde are going to take a lot more time to lookat it, and thers will be downward value pressures because they’ll be concernerd about overpaying,” The severity depends on specifics of the financiap misstatements and the size of the potentialp buyers, Wolfanger said.
A very large company is more likelyg to acquire product lines and not a lot of he said, while a smallert buyer might look to operate the company as is. “Ig depends how far up the income statement thesed irregularities occur as to who gets Wolfanger said. “The bigger guy is concerned if it relateds to gross margins onthe products; smalleer potential buyers will have problems trying to sort to what’ s happened and what’s the true profitability of the To the extent it’s irregular to a vendor sourcin g agreement or something misstated, everyone’zs going to have a problem.
” Buyersx are actively looking for manufacturing companies, whichj have been in shorft supply since the recession hit becauser owners are holding out for higher pricesa when the economy rebounds, said Jefferuy Peters, a director of Downtown law firm Cohe n & Grigsby PC who specialized in M&A. He said many privatd equity firms have raised fundsz that they must deploy within a set period of time or elserepayu investors.
“A private equity firm is goint to be looking at pricing free cash orEBITDA (earnings before interest, taxes, depreciation and amortizatio have been subtracted), so if earnings have been overstated, it’ss going to result in a significantly lower purchase price,” Peters said. For strategic buyerx — other companies looking to increase markeft share or branch into relatefbusinesses — “this is a wonderful time for buyinb companies with prices that are depressed,” he providing that they have the cash and don’tf have to arrange financing.

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