Like all financial market segments, mergers and acquisitions have their ups and downs. But when M&A activity is on the upswing, every company is better positioned for opportunity. Engaging the services and specialized expertise of external professionals such as accountants and tax experts, appraisers and valuation specialists, and financial advisors can make a difference in the crucial early phase of an M&A deal, for both sides.
Regardless of employee size, organization infrastructure, annual revenues or core competencies, every company considering a sale should realize the time to bring in outside financial professionals is before sellers announce they are willing to entertain offers and before buyers announce they are interested in exploring acquisitions. Waiting until the latter stages of the deal process to bring in experts creates the potential for missteps due to time constraints.
For successful M&A deal planning and execution, below are four steps your clients will need to take and why they are important:
1. Audit of all financial inventory: A messy or incomplete financial picture can doom a deal before it even gets started. To get serious offers, companies need to have third-party, audited financial statements going back a minimum of three years. Companies taking shortcuts will enter the selling process at a disadvantage. In-house proof of your current financial picture and future projections have the potential to be influenced by overly enthusiastic team members and may be seen as less than credible. An outside audit demonstrates two very important things: financial credibility and leadership seriousness of purpose. Starting off with external validation will build confidence on both sides and advance next steps in the due diligence process.
2. Retain tax specialists: An accounting department is often a key factor in successfully running a business, but different skills will be needed in the selling of a business. The M&A process is unlike any other and requires a particular expertise and attention to detail, everything from organizing document preparation to evaluating letters of intent to being well-versed in tax implications, government compliance, quality assurance and industry regulations across federal, state and even international, if the acquisition will cross borders. Accounting specialists experienced in M&A deal infrastructure, along with an understanding of the steps, pace and deliverable expectations for both sides, should be part of your team.
3. Smarten up about your real valuation: Historically, M&A valuation was primarily based on established sales and revenues, cash flow (EBITDA) and/or physical assets like real estate, equipment, facilities and patents. While all of this is still crucial toward assessing value, companies now need to also account for their digital assets. Apps, subscription models, social media contacts and followers, proprietary tech, and audio and video communications, like podcasts and webinars, should all be considered if an accurate valuation picture is to be created.
Valuation experts also examine the particular market in which your business operates. This gives you a more accurate sense of the space your company occupies in that market, and you can feel more confident in the validity of the valuation. A well-done valuation can also show a trend line of future growth and buyers are always attracted to sustainability.
4. Structure of the deal: Professional accountants and tax experts know how to advise leadership teams on current and future taxes, depreciation factors, cash flow, EBITDA and any potential liabilities that should be addressed. The way a deal is structured can make a big difference. An ESOP may not return a valuation as high as an outright buyout by a competitor. Potential purchasers want to know there are opportunities for future growth already in the pipeline. This is also motivation for keeping your sales, marketing and creative teams chugging along with new ideas for products, services and market strategies.
Professional accountants, financial and tax experts need to know their value in the M&A process. Understanding and being able to communicate the why and how of your services can make a difference for companies on both sides of the deal is essential. The time is now.
