As the baby boomer generation heads into retirement, an estimated $30 trillion in inheritance is expected to be transferred  as business owners begin selling their assets. These leaders have dedicated years to developing their companies and have deep emotional ties to their businesses. Previous generations would typically pass ownership to their children, but current owners are finding that many millennials are not interested in taking over their parents’ companies. While owners want to maximize the value they have built as they prepare for retirement, many have no succession plans or insight into how to capitalize on a sale.

With a record number of closely-held or family-owned businesses currently coming to market, an accounting adviser can be the missing link to guide sellers and their teams through critical accounting related areas of a sale process. Alvarez & Marsal’s (A&M) dedicated professionals work closely with the Company and their sell-side investment banking advisors to guide the Company through the accounting and due diligence-related areas of a sale process. A&M’s professionals establish a personal relationship with owners and seek to protect their interests.

Conducting Sell-Side Due Diligence as the New Industry Standard

Historically, investment bankers and legal advisers have been sellers’ key resources to drive the financial and accounting aspects of the deal process. Sell-side financial due diligence advisers bring a complementary skill set that helps management and their investment banking team prepare for a rigorous due diligence process.

Over the last few years, it has become the industry standard for owners and their banking teams to hire an accounting adviser to prepare management for the due diligence process and support the owners and bankers throughout the process.

Viewing the Business Through an M&A Lens

While the owners, leaders and Chief Financial Officers (CFOs) of closely-held businesses are experts in their industry and in the complexities of their company, they are often not versed in the M&A process, leaving them vulnerable and unprepared for the deal process.

A good accounting adviser views the business through an M&A lens and will coach management teams on the implications of certain trends and issues to best position the company for the transaction. When brought in to assist a seller, our team identifies overlooked add-backs that can increase the selling price — as well as potential skeletons in the closet that could derail the sale. Advanced preparation helps the company significantly when these issues are discussed during a buyer’s diligence process.

A&M has supported countless family businesses through sale processes. We recently worked with the founder and owner of a 35-year-old distribution company. While he and his team were experts in operating and running the business, as well as in managing their financial records, they had never been through a sale and were unfamiliar with how the company’s valuation would be determined. After bringing us on board, we identified several adjustments to historical earnings that in turn increased the transaction’s value meaningfully. Had these items not been identified, buyers may have uncovered them themselves but may not have “paid” the sellers for the implied value. We also quickly highlighted certain items that buyers would likely take issue with, but by discussing them early on, we were able to guide the owner on how to position them if flagged by prospective buyers.

Additionally, we educated management on the due diligence process and served as their advocate throughout the deal process.

Capitalizing on the Sale and Identifying Potential Financial Issues

Bringing an accounting adviser onto the team early in the sale process will ensure leaders are maximizing their business’s value, as well as identifying and solving potential financial issues. A&M assists closely-held businesses with the following:

1. Sell-side preparation. We get involved early and provide hands-on expertise in the preparation stage. During which, we create branded or unbranded reports and Excel-based deliverables that will be used throughout the process. We also prepare the management team for what is to come when the sale process commences and buyers begin their diligence by coaching them and advising on what to expect. We hold dry-run management meetings and work closely with the legal advisory team on drafting the sale and purchase agreement. Additionally, we collaborate seamlessly with the investment bankers to ensure the financial model, confidential information memorandum (CIM) and management presentation are consistent with the quality of earnings (QoE) report, and to prepare the financial section of the data room.
2. Sell-side support during the auction process. Once the auction begins and buyers have been brought in, we provide behind-the-scenes assistance to management teams to respond to the buyers’ questions and to interpret the underlying implications and meanings behind certain questions and issues. We help the bankers manage the buyers throughout their due diligence by serving as the first line of defense, especially in an effort to limit the amount of time management has to spend away from the day-to-day business. We also help the bankers, lawyers and management team throughout the purchase agreement negotiations to ensure our client is protected from a financial accounting perspective.
3. Post-closing support. Even after the deal closes, we continue to support the former owner throughout the post-closing net working capital (NWC) settlement and the overall transition to the new owners.

Owners who have spent a lifetime dedicated to carefully building their companies deserve the same amount of care when finding and passing it to a buyer. Contact us to discuss how we can maximize the value of a closely-held or family-owned business during a sale process.