In Anticipation of Going to Market Valuations performed for mergers and acquisitions are different than most of the traditional valuation work. The author of this article shares the standard of value used in these engagements, the due diligence conducted, and merits of preparing a calculation report in anticipation of going to market. Valuations performed for mergers and acquisitions (M&A) are different than most of the traditional valuation work we handle on a day-to-day basis. One of the biggest differences is the standard of value used. Typically, the valuation professional will use investment value rather than fair market value. NACVA’s definition…
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Pre-Sale Accounting Best Practices for Buyers and Sellers In today’s market, it is especially important that prospective acquirers of emerging companies understand exactly what they are purchasing and how to allocate the purchase price among the assets acquired and liabilities assumed. This article discusses the importance of quality of earnings and impact on the acquisition price. As buyers tighten their purse strings in a volatile economy, parties on both sides of startup M&A deals must ensure they are prepared to effectuate the transaction from a financing perspective as well as address the related financial reporting and other accounting implications. This…
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Financial Due Diligence Preparation and readiness for the sell-side process will contribute to maximizing the value of your company and mitigate the risk of surprises at the critical stages of the proposed transaction. The author shares what to expect in a sell-side engagement and what can be done to exit successfully. You have considered the pros and cons to selling your manufacturing and distribution (M&D) business and have decided that the time is right to sell. Many entrepreneurs fail to realize that proper and timely planning and preparation for the “sell-side” process is critical to consummating a successful, timely, and…
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Alternative Means to Effectively Gauge Business Operations and Assist Owners Three ratios that are widely used have validity because they are either used in business valuations, loan covenants, reports to stockholders in Form 10-Ks, used when financial statement analyses are performed, or have familiarity because they have become entrenched in the system. The author of this article considers reliance on these three ratios as “inadequate in advising clients that need effective information to operate their businesses” and perhaps do not help in isolation valuations drivers that assist managers in operating businesses. The author discusses other metrics that provide better insight.…
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Key Actions to Undertake to Increase the Price of a Company This article provides a brief overview covering what the author—a middle market investment banker—believes is the most worthwhile and impactful actions that anyone contemplating the sale of their business can take right now to set themselves up for success in a future transaction process. The author recommends that prospective sellers and their advisors focus on five critical steps, with the aim of having key points to negotiate the sale and commanding the highest selling price. Steps to Raise the Price of a Company Anyone seriously contemplating the sale of…
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Conducting Financial Due Diligence and Quality of Earnings Analysis Financial due diligence and quality of earnings reports provide a third-party analysis of a target company’s current financial position and historical financial performance. When evaluating a potential business acquisition, it is crucial to understand the nature and magnitude of the business’ cash flows. Whether from the perspective of the buyer or seller, the earnings of the business are essential to determine an appropriate purchase price or multiple to be used in pricing the deal. Furthermore, it is in the best interest of both sides of a transaction to accurately represent and…
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In an ESOP Formation Financial Feasibility Analysis (Part II of II) This is the second of two-part article that discusses ESOPs. In this part, the author focuses on quality of earnings, liquidity, and plan design analyses. Owners of a private company who are looking for an exit strategy may consider the sale of all (or part) of the company to an employee stock ownership plan (ESOP). Such a strategy may be particularly attractive to baby boomer private company owners who are seeking retirement and liquidity and who would prefer to see their loyal employees retain a stake in the company…
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When Performing a Business Valuation Earnings are not always objective and valuations apply a multiple to earnings to determine a company’s value. The elements making up a company’s valuation involve determining normalized earnings, a decision whether income taxes would be applied, and the capitalization rate to be used to get the value. There are also other factors, but this article looks at the quality of earnings.