Acquisitions | RKL LLP
Posted on: January 19th, 2016

Mergers & Acquisitions 101: Preparing to Sell Your Business

Word cloudConsidering selling your business? Before stepping into the world of mergers and acquisitions, there are several preliminary tasks that can give business owners a competitive advantage. Going into the sale process armed with accurate and clear information about your business allows you to proceed from a position of strength.

Here are some steps to help you assess the attractiveness of your business to potential buyers.

1. Review financial performance.

It is important to look back before moving ahead with a sale. Take a look at your past financial statements and recast them to remove non-essential, non-recurring or unusual expenses. This gives you a standardized and organized way to examine the operational results, recent trends, historical data and cash flow generated from operations. Any potential buyer will conduct this type of analysis, so getting a sense ahead of time of your business’ “value proposition” can be an advantage going into the marketplace.

An experienced business valuation professional can help by standardizing this information in a clear and efficient manner, as well as identifying trends or other relevant information to provide deeper insight into the appraisal. Leveraging an outside expert also brings the benefit of a “fresh set of eyes,” which is critical to an honest and thorough evaluation of any business.

2. Develop forward-looking financial projections.

Once you’ve established your business’ history, it’s time to look ahead. Fleshing out financial projections based on the current status of operations will give you (and buyers) a sense of what to expect after the purchase. It’s important, however, to document the key assumptions you used in developing the projections and be sure to present all the information in standardized format.

3. Gather relevant industry and market activity data.

We all know that businesses don’t exist in a vacuum, so it’s also critical to understand what is happening in your industry. Researching recent activity and trends in the marketplace can help you find out what buyers are paying for similar businesses, who is in acquisition mode, and if there are any other potential interested parties you should be considering. All of this information and data is useful intelligence that can help shape your game plan for a potential sale.

Carrying out the research tasks above will leave you fully prepared for meetings with potential buyers. Knowing what to say and what not to mention, deciding what information to provide and in what format and making a good first impression are essential to maximizing the deal price. After all, when preparing your business for sale, knowledge most definitely is power.

RKL’s team of business consulting professionals can provide transaction advisory services to prepare your business for sale. Contact one of our local offices today to get started.

John S. Stoner, CPA, CVAContributed by John S. Stoner, CPA, CVA, partner and leader of RKL’s Business Consulting Services Group in the Lancaster office. John provides a wide range of business consulting services, including business valuation, financial analysis, litigation support, merger/acquisition assistance and business succession planning.

 

 

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Posted on: November 3rd, 2015

Mergers & Acquisition 101: Understand What You’re Buying

Word cloud“Let the buyer beware.” This old saying holds true for mergers and acquisitions. When considering whether a particular business acquisition makes sense, it is important to analyze the financial performance of the target company. This analysis will allow you to determine what value proposition you expect to receive from this transaction, and generally consists of five steps:

  1. Analyzing trends in the historical financial statements
  2. Recasting of the historical financial statements to remove non-essential, non-recurring, unusual expenses and to adjust related party transactions to estimated fair market value
  3. Comparing the adjusted financial statements to industry data (gross margin percentage, operating cost structure, operating profit margin)
  4. Constructing forward-looking financial projections of the target company operations on a stand-alone basis
  5. Adjusting the financial projections to incorporate anticipated changes in revenue and expenses as a result of integrating the target company operations into your existing business model

Much of the data used to perform the financial analysis is provided by the target company. Be sure to review this information with several key questions in mind:

  1. What is the quality of the financial data? Be sure to determine whether the financial statements have been subject to an external audit or review by a CPA. It is also critical to know if Generally Accepted Accounting Principles (GAAP) were applied consistently during the preparation of the statements. You will want to also review the target company’s corporate income tax returns to make sure they are consistent with the financial statements provided to you. Finally, if the statements rely on interim financial results, the reliability of that data must be verified.
  1. How were expense adjustments and projected future operating results identified and quantified? Once you’ve determined the quality of the historical and current financial data, you will want to take a closer look at future projections and recastings. Determine whether the expenses being removed are really non-essential or non-recurring, and whether or not their removal will negatively impact the ongoing business operations. Examine the projected future operating results with this question in mind: Does it make sense that this target company would be that much more profitable in the future? You will want to ensure the projections are realistic, and not overly rosy or completely out of sync with the current cost structure. 
  1. Are the potential synergies associated with combining business operations reasonable? Once the ink is dry on any merger or acquisition agreement, the real work of combing two companies begins. That’s why it is important to consider from the outset whether any potential synergies, savings or benefits are realistic and reasonable. Determine if the revenue expectations associated with the expanded customer base make sense. You will also want to evaluate how realistic the expectations of reduced personnel or other operating expenses are. Finally, don’t neglect to consider the costs associated with the operational integration itself.

Acquiring a new business or merging operations is a significant undertaking, so performing a thorough review with a critical eye and grounded assumptions can prevent the unpleasantness of an acquisition gone bad or overpayment for a target company. Asking the above tough questions and obtaining the most up-to-date and accurate information as possible can help guide your decision-making and evaluation process. RKL has a team of consulting professionals experienced in mergers and acquisitions who can help you undertake a thorough and in-depth review. Contact one of our local offices today to get started.

John S. Stoner, CPA, CVAContributed by John S. Stoner, CPA, CVA, partner and leader of RKL’s Business Consulting Services Group in the Lancaster office. John provides a wide range of business consulting services, including business valuation, financial analysis, litigation support, merger/acquisition assistance and business succession planning to business clients.

 

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