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Over the past six months we have had several emerging companies complete acquisitions in this heated M&A market. In most instances it's not just one deal, but successive deals of a similar nature in a short amount of time. As a result, these clients are terribly busy with the integration of new facilities, assets, employees etc. Accounting and taxes are not always the top priority and usually the accounting team starts to fall behind. Why? Well, often companies underestimate the financial integration issues, including the work that needs to be done by their current audit teams on the new assets. Secondly, acquisitions are rarely scheduled. In other words, the auditors, bankers, valuation professionals etc., don't have the acquisition built into their capacity and may have to "fit it in" with normal recurring projects. Which means, that acquisitive companies can fall behind on reporting. The good news from the valuation front is that the two most common post deal requirements that companies generally face do have synergies if managed appropriately.

The first issue that most CFOs want taken care of, so that they can provide a balance sheet to investors, is the allocation of the purchase price across asset classes. There are also generally fuses in the acquisition agreement that require the allocation be completed by a certain date (that's another topic!). Right on its heels is the need to grant both newly acquired and existing employees incentive option grants (409A). With successive deals, we find that there are synergies with the allocations especially in rollups. Generally, assets are similar across targets and the methodologies employed can be identical. Which means if possible its best to bundle the work. However, in most instances the capital structure is changing as new companies are added. As a result, the value of incentive option grants may be somewhat of a moving target as the rights and powers of classes may be impacted by additional debt and/or equity rounds. All in all, there are significant synergies in completing all the work at once and staying ahead of the reporting game. Delaying allocation work (if the agreement allows) increases the complexity, as sellers (both employees and management) begin to disappear as does historical data. Keep in mind, that combining the valuation projects and planning can help reduce both the time commitments of the management team, costs, and often most importantly help to avoid falling behind on reporting.

Category(s): Valuation Thoughts
Posted by Brett Suchor at 10:08 PM | Permalink | Comments (0) | TrackBacks (0)