Anyone who has been involved in M&A transactions can certainly attest to the fact that no two deals are alike. It is important to have a good team assembled so that you can leverage everyone’s expertise and prior M&A experience to help you march towards a successful deal.

This is the first of a three-part series where we discuss how a CFO can add value during the deal process.  We will focus on following three phases:

• Prepping for the Deal
• The Transaction
• Post Deal

We could write a book about each phase of the deal.  Since we can’t fit it all here, we will just touch on some key aspects of each phase.  Your CFO should be involved and can add value to all aspects of the deal that I touch on this series.  While most of the viewpoints in these articles are from the viewpoint of the seller, the CFO is just as equally valuable on the buyer side of the transaction in every phase described.  

Prepping for the Deal (Part 1 of 3 Part Series)

People who prep will be wildly more successful than the person who wakes up one day and says, “I am ready to sell”.  There is a lot you can do to prep for a potential transaction. 

EBITDA:

Most deals are valued at a multiple of EBITDA.  What can we do today to improve EBITDA?  There is probably some low hanging fruit that can improve EBITDA immediately.  Make sure any strategic undertakings will pay off (i.e., improve EBITDA) before you go to market.  Also, what are some ‘out of the ordinary’ expenses that should be carved out of your history?  As an example, I worked on a deal where the company had unsuccessfully tried to open an office in another city.  When it came time to present the financials to a potential buyer, we carved out all the expenses related to the failed project so that the financials more accurately represented what the buyer was buying. 

Quality of Earnings

When deals fail during the due diligence phase, one common area is the quality of earnings.  If someone else digs into your financials, will they be able to confirm your profitability, or will they carve up your results?  Your house needs to be in order before you go to market. 

Story 

What is the story you are telling to interest a buyer?  Do the financials you present support this story?  Beyond the results, sometimes your financial reports need to be reformatted to support the narrative.  

Data Room

What else will a buyer want to see beyond your financials?  Contracts, insurance, HR data, marketing studies, payroll tax filings, insurance claims…the list can be comprehensive.   

Anticipate

Your ability to anticipate questions from the other party will significantly increase your ability to shine when the spotlight is on.  You also need to identify things that could impede the deal so you can get ahead if it.  This could be outstanding liens or company performance during the negotiation phase. 

Most business owners only go through this process once in their career.  An experienced CFO along with your entire team can help you create a strong gameplan when going to market.

If you would like further information about Crown CFO, reach out to Mike DeMaio ~ mike@crowncfo.com