What is the value of putting a full-service accounting, tax, financial, and advisory firm led by a certified public accountant (CPA) with mergers and acquisitions expertise at the center of your M&A deal? Today, I’m going to explain that as clearly as possible.
Here are the key takeaways:
- A CPA with M&A expertise serves as the central coordinator among consultants, lawyers, lenders, and wealth managers.
- Structuring a successful M&A deal requires strategic tax planning, due diligence, and clean financial records.
- Owners exiting via M&A need compliance, accurate valuation, and wealth-building strategies in place before going to market.
- Growth-oriented acquirers benefit from rigorous due diligence and post-transaction integration support.
Let’s get into the specifics.
Successful M&A transactions require coordination between specialists across industries.
The typical M&A deal involves a team of advisors, consultants, attorneys, lenders, and wealth managers.
Unfortunately, coordination among these parties can be easily disrupted if there’s no one to quarterback the deal. A CPA with knowledge of the process and the players can help keep things on track. That applies to growth and exit strategies.
What is the unique value of a CPA in mergers and acquisitions?
Business owners tend to view M&A deals as transactions with outcomes that can be negotiated for and realized in the present. It’s understandable.
For example, when dealing with a vendor, price points, timelines, and expectations are hashed out; both parties agree to the terms; and business owners bake in expenses and timetables directly into operations. Prices may fluctuate, and vendors might go out of business—but these are known problems. There is risk, but there’s visibility into it.
M&A deals present a set of potential problems and implications that are not plainly visible, and that’s particularly true when it comes to tax liability.
As a CPA, I see the tax implications first. I work with attorneys who view M&A through a legal lens. Wealth managers understand tax implications, but they don’t prioritize them. It takes all three parties, along with trusted lenders and brokers, to deliver a timely, profitable M&A deal.
Here’s what I look at:
- Tax due diligence and compliance review to uncover hidden liabilities
- Tax-optimized deal structuring to minimize your burden at closing and beyond
- Thorough analysis of financials, tax exposure, and deal risks
- Books and records preparation to ensure you’re transaction-ready from day one
Consider this scenario.
If there’s a stock exchange, the company’s corporate structure may need to be updated. A good example is a limited liability company (LLC) attempting to acquire or merge with a C-corp.
The LLC members could take over stock in the C-corp or change their tax status. How do you decide?
Available business entity structures include sole proprietorships, partnerships, S-corps, C-corps, LLCs, and LLPs. Most people think of M&A as something that only happens between larger corporations. In my experience, the space isn’t that limited.
Behind every M&A deal, there’s a team of specialists.
Your team should include specialists capable of managing the several moving parts in the M&A process. The CPA’s role in mergers and acquisitions is to coordinate those efforts and ensure the financial and tax ramifications are clearly stated. Here’s what a typical team looks like:
- Consultants: An M&A consultant can help you form a business strategy and calculate valuations for the buyer and the seller.
- Lawyers: Attorneys play a crucial role in mergers and acquisitions. They draft legal documents and provide legal advice during negotiations.
- Lenders: It’s hard to do anything without funding. The lender should be part of the team so you can negotiate financing or refinancing.
- Wealth management firms: Wealth management firms with M&A expertise can plan for post-transaction liquidity and estate considerations.
A CPA/advisory firm serves as the operational and technical center, the one partner who touches every aspect of the deal and ensures all parties are working from the same financial reality. As the “quarterback” of the process, it’s our job to make sure the ball is passed to the right party at the right time to ensure that deals are profitable.
If you’re new to the M&A process, you need to know that there are five equally important phases to every deal.
A review of how the M&A process works can further illustrate the importance of having a CPA on the team. You should start with an exploratory phone call to our office, making a statement of intent and requesting our involvement in the deal. We’ll answer your questions and get you ready for what comes next.
There are roughly five phases to every deal. Let’s get into it.
Phase #1: Preparation
This is where you get your financial house in order. A CPA can help you clean up financial reports, tax filings, and general bookkeeping practices, including a review of the general ledger and balance sheets that prospective partners or buyers will want to see.
Phase #2: Due Diligence
Do you know how much your company is worth? How about the business you’re targeting for a merger or acquisition? The due diligence phase is when we closely review these numbers and other factors that could either help or hinder the deal.
Phase #3: Negotiation
The first two phases are the foundation steps to Phase 3. Negotiations can’t begin until you have accurate numbers on all parties involved. Discussion points in this phase are typically based on projected revenue, liabilities, and valuations.
Phase #4: Closing
Closing is the process by which ownership is transferred from the seller to the buyer. It could also be where a partnership is finalized. The CPA’s job is to be available for any last-minute questions. My team also has the experience to be instrumental in drafting the agreement.
Phase #5: Integration
Integration is often overlooked in the M&A process because it’s seen as the “what happens after” portion that can be left to the new ownership group. If you’re part of that group, you should have the integration figured out before you sign the deal.
Clean, accurate financial recordkeeping significantly reduces acquisition-related risk.
Mergers and acquisitions are a great way to grow quickly, but they also involve significant risk. The slightest mistake in your financial records skews the numbers for projected revenues and profit margins. Incomplete or flawed due diligence could leave you with a worthless acquisition, eliminating any chance of future growth.
Having a CPA handle the preparation and due diligence phases of an M&A deal can help you avoid making these critical mistakes. That includes producing clean and accurate financial statements, making sure you’re current on federal and state tax filings, and having an accurate valuation of the company you plan to acquire.
Exit readiness and year-to-year tax reduction are complementary services when businesses partner with an M&A-focused CPA firm.
Exit strategies, or sales, follow a similar progression to acquisitions, but your goals are different. A merger is growth through collaboration. An exit strategy is getting as much money as possible for your company so you can retire or move on comfortably. You’ll need accurate financials to do either.
Few CPA firms position mergers and acquisitions as a core service and instead take an auxiliary role in these transactions.
For business owners, there is a dangerous reliance on over-large, unwieldy brokerage services. Business owners with the foresight to get serious about the future now stand to gain a competitive advantage and reduce risk.
Let’s not forget the history. The “CPA advisory firm” was once a novelty; now, more and more firms are hastily attempting to expand their capabilities to provide value beyond bean-counting. In Fort Worth, we moved first. The same is true for M&A.
Work with a team built to support M&A from the first call to the final closing.
M&A is a core service at this firm. Why? Because the CPA-led M&A process is a solution to a genuine need. In our case, we combine integrated network management with deep technical expertise in tax planning, preparation, and resolution. Our capabilities span from bookkeeping and cleanup to accounting system setup and automation, to complex deal structuring.
Whether you’re considering a sale, evaluating an unsolicited offer, or planning strategic growth through acquisition, the right advisory team makes all the difference. Don’t leave the most important transaction of your business life to chance. Get squared away. Get an exit plan.
Schedule a discovery call to discuss next steps.
Talk soon,
Jeremy A. Johnson, CPA