Author: Patrick Dunleavey, CPA, Principal, CironeFriedberg, LLP
In May we discussed the benefits of a base line valuation even if you have no plans to sell your current business. However, what if you are contemplating a merger or acquisition?
If you are the owner of a small or midsize business who is looking toward retirement, this could be the time to start thinking about selling your company. Business valuations are at all-time highs spurred on by low interest rates and available capital. We continue to see significant activity in the marketplace.
Perhaps you have a family-owned business poised for growth. This could be an opportunity to increase your market share, integrate vertically, or achieve economies of scale.
In either case, avoid the FSBO (for sale by owner) route. Whether you’re looking to buy or sell, this is not the time to do it yourself. Quality advisors are a key to successful transactions.
Humans are not the only ones who follow a standard life cycle. Businesses do, too. As a matter of fact, every business — no matter how large or small — goes through these phases:
- Concept and Startup
- Growth
- Maturity
- Decline
- Death/Closure/Sale or Rebirth
If you’re in Stage 2: Growth or Stage 5: Rebirth, you might be thinking about acquiring or merging with another business, commonly known as M&A (mergers and acquisitions). If you’re in Stages 3: Maturity, 4: Decline or 5: Death/Closure/Sale, M&A could be the solution for you too.
The following scenarios might be reasons for you to consider M&A. You’d like to:
- Increase your market share by taking over a competitor.
- Use surplus cash for more profitable endeavors than investing in your existing business for a possible lower return.
- Survive! By partnering with another business or selling outright, you can avoid withering on the vine and taking a loss.
- Diversifying your holdings, the majority of many small business owners wealth is tied to a single investment.
Any path toward success must be well prepared, especially if you have little or no M&A experience. If you’re a potential buyer, you’ll need help with the following:
- Arranging the necessary finances for the deal, including support in negotiations with the financing company.
- Structuring the transactions, scheduling the payments and getting agreements from all involved stakeholders.
- Drafting the terms of the deal and finalizing legal terms.
- Performing due diligence on the potential target.
- Making the necessary strategic decisions, such as when to publicly announce the deal to the open market and to employees.
If you’re a potential seller, you’ll need help with:
- Substantiating all reported income, especially if it’s been deferred to reduce tax liabilities. Same goes with any expenses that have been pushed forward.
- Filling in any gaps of weak or missing documentation. This is especially important with key intangible assets such as patents, licenses, employee contracts and proprietary software.
- Analyzing and strengthening internal controls, and standardizing any casual systems by implementing formal policies and procedures and documenting them.
- Preparing financial information to be included in the marketing documents
- Fulfilling documentation and reporting requests of the acquiring entity and the banks providing their financing.
- Structuring the transaction to maximize tax effectiveness.
- Preparing for post-acquisition accounting and reporting requirements including audits.
Whether you are a buyer or a seller, the more you know, the more you realize what you don’t know. Contact your CironeFriedberg professional for more information on mergers and acquisitions. Call us for more information, at 203-798-2721 or 203-366-5876, or email us at info@cironefriedberg.com.
