The merger and acquisition (M&A) market took a nosedive in recent years, but rebounded swiftly. Investors who pulled back on purchases previously are looking to make use of their cash reserves while interest rates are low and tax rates are advantageous. If you are looking to sell your business, now may be the perfect time. There are just a few things you need to consider.

Pre-Transaction

Before an M&A transaction takes place, obtain a business valuation. Valuations rely on quantifiable data like financial history and earnings projections, but they also rely on subjective data like market trends and synergies with the purchaser. If your financial reports hint at a value you’re not ready to accept, you may benefit from commissioning a quality of earnings report (QOE).

QOEs examine the underlying quality of your company’s cash flow and earnings, which are facts not readily apparent from a financial statement audit. You can use this information to shore up deficiencies, and during the negotiations process, your seller can use this report to better assess the intrinsic value of your business.

Transaction

M&A transactions require a lot from the buyer and the seller. As the seller, you will need to:

• Identify suitable investors or purchasers.
• Develop an informational memorandum describing your company and its merits.
• Manage due diligence proceedings.
• Calculate transaction and earnout scenarios.
• Draft post-closing covenants.
• Evaluate both long-term and short-term tax consequences for you and the other owners.
• Establish negotiation strategies.

Post-Transaction

Once you sign on the dotted line, there will likely be more obligations for you to fulfill. For example, the agreement may require you to integrate your IT system with the buyer’s or to oversee employees during the transition. You must also be prepared to manage consequences that you could not have foreseen. For instance, you may need to make purchase price adjustments if estimates were flawed, or address indemnity claims that are made against you. Thorough analyses performed in the pre-transaction phase can mitigate many of these issues, but they cannot eradicate all unknowns.

If you want to pursue merger and acquisition services in 2022, work with accounting professionals like LaPorte CPAs & Business Advisors who can provide a full range of services including estate planning, quality of earnings reports, tax advisory, due diligence, transaction structuring, valuations, financial analysis, and modelling services.  Doing so will help you ensure you are getting as much equity out of your business as possible.