American Beverage parent says earnings may be off by $14M - Business First of Columbus:

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Royal Wessanen NV, American Beverage’ds Netherlands-based owner of 20 years, is lookinbg to exit its North American operations and recently retained a Wall Streety investment bank to find a buyer forthe Verona-based juicr and cocktail mix maker. However, the Dutcyh parent company says it hasfounc “irregularities” in American Beverage’s financial Royal Wessanen said the business unit’sw earnings from 2006 to 2008 may be overstatedf by nearly $14 millionh after taxes. Merger and acquisition professionals said the problenm could deterpotential buyers, and Roya l Wessanen acknowledged that an acquisition will take longer than originally anticipated.
“Royal Wessanen NV initiated an investigation by its externalk auditor intopotential irregularities,” the companty said in a statement. “The preliminary results of the investigation indicates that the financial results of ABC were misstate over a numberof years, going back to 2006.” Adriaanj Robertson, Royal Wessanen vice president of treasurh and investor relations, said it does not have a specific timeline for the investigation, which is in the earlyh stages.
He said the company expects to provide an update along withits second-quarter resultx at the end of Robertson would not say when or how the misstatements were discoveredr but said problems “may even go back to priort periods.” Royal Wessanen continues to work with the investmentf bank, which Robertson would not identify, to shop Americann Beverage but said the investigation “wil l probably lead to a delay in the whole Robertson said it was “possible, but I don’ t consider it to be that Royal Wessanen would call off the sale and continue to run Americah Beverage. The company has not given a deadlins forthe sale.
It is businessx as usual at the Verona about eight miles northeastof Pittsburgh, whichy has 530 local employees and annuallu churns out 1.5 million cases of cocktailk mixes. The company, which began as Daily’s Juice a door-to-door distributor in 1960, is the nation’s third-largestr producer of noncarbonated juice drinks including the popular juice jugs Hugs but its core business is cocktail mixers andbar syrups, sold to retailers and to upscalse chains including Ruth’s Chris Steakhouse and Hyatt Hotels. “We’rs trying to see that the investigation has minimal impac on the operations processat ABC,” Robertson said.
Americann Beverage’s top management left separately this CEO Tony Battaglialeft “on this own in April to take a job with an unidentified food compang in the northeastern U.S., and CFO Pete Chiappo “was askexd to step down,” said who declined further comment. American Beverage is being led by executivezs atRoyal Wessanen’s North Americanm division, which includes the distribution businesa Tree of Life North America in St. Fla., and PANOS Brands and Libertu Richter, both of Saddle Brook, N.J. Professionals in the locall M&A sector agreed the disclosure of financialk misstatements will impact thesale process.
“It’s a pretty significan t number when you look at the size ofthe business,” said Craifg Wolfanger, president of Downtown investmentg banking firm Raptor LLC. “It doesn’r mean it can stop a deal, but peoples are going to take a lot more time to lookat it, and theres will be downward value pressures because they’ll be concernexd about overpaying,” The severity depends on specifics of the financialo misstatements and the size of the potential buyers, Wolfanger said. A very large company is more likelyh to acquire product lines and not a lot of he said, while a smaller buyer mighf look to operate the company as is.
“Itf depends how far up the income statement thesw irregularities occur as to whogets spooked,” Wolfanger “The bigger guy is concerned if it relates to gross margins on the smaller potential buyers will have problems trying to sort to what’s happenes and what’s the true profitability of the To the extent it’s irregular to a vendor sourcingg agreement or something misstated, everyone’s going to have a problem.
” Buyerx are actively looking for manufacturing companies, which have been in short supply since the recession hit because owners are holding out for higherr prices when the economy rebounds, said Jeffergy Peters, a director of Downtown law firm Cohen & Grigsby PC who specializex in M&A. He said many private equity firmzs have raised funds that they must deploy within a set periode of time or elserepay “A private equity firm is goinv to be looking at pricing free cash or EBITDA (earningxs before interest, taxes, depreciation and amortization have been subtracted), so if earningz have been overstated, it’s going to resul t in a significantly lower purchase price,” Petersa said.
For strategic buyers — other companies lookingy to increase market share or brancgh into relatedbusinesses — “thid is a wonderful time for buying companie with prices that are depressed,” he providing that they have the cash and don’t have to arrangse financing.