Global merger and acquisition (M&A) activity is expected to exceed $4 trillion in 2025, driven by factors like interest rate cuts from the 
Federal Reserve, promises of reduced regulations, and lower taxes for U.S. businesses. Additionally, potential tariffs could prompt consolidation in certain sectors. If your business is planning to participate in the M&A wave, working with a business valuation professional can provide invaluable support throughout the process.
Preparing Your Business for Sale
When selling a business, buyers typically focus on a company’s core strengths. Nonessential assets like underperforming divisions, nonoperating assets, and shareholder loans can complicate the sale. A valuation expert can assist in streamlining your balance sheet and preparing your income statement to appeal to buyers and maximize the sale price.
For instance, private business sales often involve multiples of earnings or EBITDA (earnings before interest, taxes, depreciation, and amortization). By taking proactive steps such as cutting unnecessary expenses and reducing related-party transactions, you can improve profitability and reduce the need for financial adjustments during negotiations.
A valuation professional can also help you prepare a thorough offer package, which should go beyond financial statements and tax returns. Before sharing any information or allowing facility tours, be sure to consult with your attorney to draft a confidentiality agreement to protect proprietary data.
Conducting Thorough Due Diligence
Comprehensive due diligence is critical for a successful deal. While buyers generally focus on the past few years’ financials, it’s wise to go beyond just the numbers. Depending on the business and its complexity, buyers may want to request:
- Marketing materials,
- Business plans and financial forecasts,
- Fixed asset registers and inventory lists,
- Working capital analyses,
- Quality of earnings reports, and
- Customer concentration evaluations.
Reviewing key contracts—such as leases, insurance policies, employee noncompete agreements, and loan documents—is also recommended. Experienced valuation experts can help uncover hidden liabilities and risks that may cause buyers to overpay. They can also assist in adjusting EBITDA for items like above-market salaries for owners and excessive personal expenses charged to the business.
Navigating the Negotiation Process
If there’s a significant difference between the seller’s asking price and the buyer’s offer, a valuation expert can help structure the deal creatively. For example, earnout provisions allow buyers to mitigate performance risks and incentivize sellers to remain involved post-sale. With an earnout, part of the sale price is contingent on the business meeting specific financial milestones.
Other common structures include seller financing, installment payments, and equity participation, especially in management buyouts or joint ventures. Taxes also play a key role in negotiations. Deal structures, such as installment sales or asset vs. stock transactions, can have a substantial impact on tax outcomes. A business valuation expert can guide you through the various options to minimize tax liabilities.
Managing Post-Deal Integration
After the deal is closed, successfully integrating the two companies is critical to realizing expected synergies. Experienced valuation professionals can assist with integration issues, such as:
- Which company’s policies will the new entity adopt?
- Which employment arrangements will prevail?
- Which locations will close or merge?
- Which positions can be consolidated or eliminated?
- Which computer systems will be used?
- Are there any assets or divisions that should be divested soon?
Post-deal, it’s essential to renegotiate contracts with suppliers, customers, employees, lenders, and other stakeholders. In some cases, the buyer may need consent to assign contracts to the new owner.
Addressing Financial Reporting Challenges
Financial reporting can be complicated after an M&A transaction. The merged companies will need to consolidate financial statements and tax returns, which may require choosing between different accounting systems and methods. If the companies have used different accounting practices, restating prior financials or amending tax filings might be necessary.
ERP software integration can further complicate the process. If systems aren’t synchronized, it could delay financial data collection or lead to errors. Additionally, post-deal, the buyer must allocate the purchase price to assets and liabilities. Some intangible assets may require impairment testing if their fair value falls below book value. A valuation expert can ensure these processes are done correctly, avoiding future write-offs. Accounting issues can lead to unexpected tax liabilities. For example, if excessive parachute payments are made to departing executives, it could trigger tax penalties. Consolidating operations in a higher-tax jurisdiction or merging employee stock option programs could also have tax implications. Proactive tax planning with a valuation expert can help mitigate these risks.
From Start to Finish
A business valuation professional with M&A experience can assist you through every stage of the transaction, even after the deal closes. Contact us for more information on how we can help you navigate the complexities of M&A.
