Accounting for business combinations is a complex area of U.S. generally accepted accounting principles (U.S. GAAP). Acquirers' accountants and auditors often have questions about business combination accounting. Questions have also been raised because of recent standards issued the Financial Accounting Standards Board (FASB) addressing the accounting for goodwill, the definition of a business, pushdown accounting, and a private company accounting alternative that impacts which intangible assets are recognized as part of a business combination. Below are some of the questions that most frequently arise when a business combination occurs.
Accounting for business combinations is a complex area of U.S. generally accepted accounting principles (U.S. GAAP). Acquirers' accountants and auditors often have questions about business combination accounting. Questions have also been raised because of recent standards issued the Financial Accounting Standards Board (FASB) addressing the accounting for goodwill, the definition of a business, pushdown accounting, and a private company accounting alternative that impacts which intangible assets are recognized as part of a business combination. Below are some of the questions that most frequently arise when a business combination occurs.
Making Strategy Work for Entrepreneurssohailgondal
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PrecisionLender Webinar - 7 Habits of High-Performing Relationship ManagersPrecisionLender
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Common Issues and Strategies in Business Breakups (Series: Complex Financial ...Financial Poise
As any entrepreneur will attest, starting and operating a business comes with unique challenges. These challenges are a key reason that, by some estimates, half of the companies that are founded today will not exist four years from now. It can be argued that the effort and attention needed to find success precludes business owners from planning for failure. This webinar focuses on the realities of a failing business from the owners’ perspective. Join our panel of experts as they discuss the various considerations that should be given at the outset of start-up negotiations and through business breakup, including dispute negotiation and litigation.
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As any entrepreneur will attest, starting and operating a business comes with unique challenges. These challenges are a key reason that, by some estimates, half of the companies that are founded today will not exist four years from now. It can be argued that the effort and attention needed to find success precludes business owners from planning for failure. This webinar focuses on the realities of a failing business from the owners’ perspective. Join our panel of experts as they discuss the various considerations that should be given at the outset of start-up negotiations and through business breakup, including dispute negotiation and litigation.
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Business valuation is the process of determining the economic value of a business or company. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership, and divorce proceedings.
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Making Strategy Work for Entrepreneurssohailgondal
Challenge: Traditional strategic planning approach fails to handle the ambiguity, uncertainty and complexity prevailing in entrepreneurial environments. Consequently, these barriers become the reason for entrepreneurs to jettison robust strategic thinking or management
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As any entrepreneur will attest, starting and operating a business comes with unique challenges. These challenges are a key reason that, by some estimates, half of the companies that are founded today will not exist four years from now. It can be argued that the effort and attention needed to find success precludes business owners from planning for failure. This webinar focuses on the realities of a failing business from the owners’ perspective. Join our panel of experts as they discuss the various considerations that should be given at the outset of start-up negotiations and through business breakup, including dispute negotiation and litigation.
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Business valuation is the process of determining the economic value of a business or company. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership, and divorce proceedings.
Often times, owners will turn to professional business valuators for an objective estimate of the value of the business.
PCO Bookkeepers is an accounting and business advisory firm obsessed with providing pest control companies’ information they need to prosper in today’s competitive business environment
One of the fastest ways to derail employee engagement and satisfaction is to make a mistake with payroll. Late salary payments, inaccurate holiday pay and miscalculated benefits can undermine morale and reduce
productivity.
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preparing and administering these payments are significant. Despite this, a recent survey found that less
than half of businesses measure the efficiency of their payroll function, and three quarters said that they had no plans to investigate implementing a payroll strategy to reduce costs and add value to their business during the downturn.
In the UK today, relatively few organisations see payroll as a strategic function, with half of companies handing over full responsibility for payroll to the finance function, with one in five opting to outsource the function completely.
It is about time that the payroll department is recognised as having a vital role to play in helping businesses to survive and thrive in a tough economic climate.
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In this paper author Nicholas Assef covers the benefits of private companies adopting a private equity mindset to consider strategies that should be adopted and actions that should be taken in planning to sell their company.
In particular this encourages the Private Company directors & shareholders to step outside of their day to day operations and reflect on the way the Company will be seen by external parties. Once this assessment has been made then adjustments can be made with plenty of time in order to optimise the business case.
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The deal is complete, and the parties have finished the hard work. Or have they? Integration planning turns to execution as people, process, and technology are combined once the deal is legally closed. The buyer will need to consider the purchased business or assets from the standpoint of employees, IT, customers, suppliers, and a multitude of other areas. In addition, numerous post-closing legal issues may arise, including purchase price adjustments, breaches of representations and warranties, enforcement of key negative employment-related covenants and restrictive covenants, collection of pre-closing accounts receivable, and true-ups of final financials. This episode guides listeners through the process, timing, and issues which most commonly arise after the closing of deals.
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Contemplating on closing your business? It might not be your best exit strategy at the moment. Why not Sell it?
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Buy Side M&A Transaction Summary - AED Buys John J Christie & AssociatesRKJ Partners, LLC
RKJ Partners, LLC is pleased to announce the closing of a buy-side M&A transaction. Our client, AED, Inc. (“AED”), purchased majority membership interest of John J. Christie & Associates, P.C. (“JJC”) Additional details regarding the transaction can be found in the attached deal summary sheet. Formed in 1991, AED operates as a Hyattsville, MD-based government contracting firm. Specifically, AED provides services in the areas of construction management, engineering, information technology and program management/acquisition support. Formed in 1974, John J. Christie & Associates, P.C. is a Washington, D.C.-based engineering firm specializing in consulting engineering services to both the public and private sectors. JJC has broad experience in both renovation and new construction contracts as both a prime and a sub consultant to architects on behalf of the Federal Government, Department of Defense, and municipal, county, and state governments in virtually every type of major urban building.
Buy Side M&A Transaction Summary - AED, Inc. Buys Red ConsultingRKJ Partners, LLC
RKJ Partners, LLC is pleased to announce the closing of a buy-side M&A transaction. Our client, AED, Inc., recently purchased 100% of the membership interest of RED Consultants, Inc. Additional details regarding the transaction can be found in the attached deal summary sheet. Formed in 1991, AED operates as a Hyattsville, MD-based government contracting firm. Specifically, AED provides services in the areas of construction management, engineering, information technology and program management/acquisition support. Headquartered in Columbia, Maryland, RED Consultants was established to address industry leaders’ critical issues and concerns surrounding mission support. RED’s services cover several functional disciplines: Intelligence Operations: Information Technology; Operational Field Support; and Professional Services.
RKJ Partners - U.S. Middle Market Financing Update
RKJ - Sell Side M&A Summary
1. RKJ Partners: Overview of Sell-
Side M&A Process
VOLUME 1; ARTICLE 1
JANUARY 2012
RKJ Partners, LLC is an I. OVERVIEW
Atlanta, Georgia based
investment banking firm In difficult and volatile markets, many businesses will inevitably look to review
their strategic options. Whether their proposed actions include a sale via a
designed to specifically assist
lower middle-market growth private auction, a public offering or entertaining a takeover offer, in all cases
the desired outcome is the same - securing maximum return on the sale of a
companies in executing
business.
transactions between $2MM
to $75MM. Businesses often underestimate the importance of planning a sale, which,
when combined with undue optimism around transaction readiness, can often
result in value being left on the table. The underlying principle is simple:
properly planned and executed sales lead to enhanced shareholder value.
IN THIS ISSUE: The challenge is, however, how to manage a complex sales process while
running a business in the current economic environment. Even in the best of
times, the planning and implementation of a sale will invariably place
OVERVIEW 1 significant pressure on your organization's internal resources. RKJ Partners’
experience also has shown that most businesses do not produce financial
information in a form or at level which is likely to fit the requirement of buyers,
PREPARING YOUR BUSINESS FOR SALE 2 finance providers, advisers and other stakeholders. This can often lead to a
owner missing or not recognizing early enough deal issues and information,
which frequently prevents the successful completion of a deal or results in
DUE DILIGENCE PROCESS 4 delay or lost value for shareholders.
At RKJ Partners, we can offer you that crucial third-party perspective:
ABOUT RKJ PARTNERS, LLC 5 ❖ Helping you to identify and challenge your rationale for sale;
❖ Viewing your business from the standpoint of a potential purchaser; and
❖ Preparing for the due diligence process so that the market at large and
your purchasers see your business at its best.
CYRIL JONES
Managing Partner
cyril@rkjpartners.com RKJ Partners’ Readiness Review
As you consider a sale, it is essential to complete a readiness review. This will
provide a framework to facilitate a robust and orderly process for selling by
GREGORY FICKLIN identifying major issues, resource requirements and work-stream priorities. A
Managing Partner readiness review comprises a detailed review by your senior team supported by
greg@rkjpartners.com RKJ’s experts, to perform an initial diagnostic of the business, providing
guidance on:
❖ Articulation of shareholder objectives, the company and its market
position, and the overall feasibility for sale.
❖ Extent of integration with other businesses in the portfolio and principal
steps required for separation.
RKJ PARTNERS, LLC
4514 Chamblee Dunwoody Rd. ❖ Key issues impacting sale value and potential mitigating actions.
Suite 170
Atlanta, Georgia 30338 ❖ Key priorities, timetables, information and level of required resources.
p. 404.963.8592
f. 404.920.2159
www.rkjpartners For your review, RKJ has provided a high level summary of the sell-side
process, as well as an overview of the due diligence process.
2. II. PREPARING YOUR BUSINESS FOR SALE
Careful preparation and advanced planning can significantly increase the likelihood of a successful
business sale and have a positive effect on valuation. The following are proactive steps a business owner
should take prior to beginning the business sale process:
RECASTING FINANCIAL STATEMENTS. Financial statements of privately held companies typically are prepared with a view
towards minimizing the tax burden. This purpose tends to be at odds with what a business owner wants to show to a
potential buyer in the context of a business sale. To enable a potential buyer to "read between the lines," the financial
statements must be "recast" or "adjusted" to reflect the true profitability and discretionary cash flow that would be
available to a new owner. This recasting involves identifying the owner and certain family member salaries, any
perquisites or fringe benefits that owners of privately held businesses customarily make available to themselves, one-
time or extraordinary expenses, current expenses for future expansion that have not impacted historical sales, non-
cash expenses and other expense items not likely to recur or be applicable to future ownership. An important step in
this process is to thoroughly analyze the general ledger to identify all expense items that can be restated or adjusted
and thereby maximize the price a seller will receive for the company.
INDEPENDENT VALUATION. An independent valuation enables a business owner to get a sense of a realistically achievable
value and confirm in advance whether or not it makes financial sense to sell the business given current market
conditions. If the lowest price that a business owner would be willing to accept for the company is well above what a
potential acquirer would realistically pay, it is essential to be aware of that information in advance of trying to sell the
company. This step can eliminate time wasted on the business sale process that detracts from the business owners’
focus. Properly understanding valuation at the outset of a sales process will also prevent “leaving money on the table”
by undervaluing the company or losing qualified acquirers by seeking an unrealistic price.
TAX IMPLICATIONS. It is crucial to understand the tax implications of a sale in advance. This will provide a realistic picture
of the net after-tax yield and help to determine the most advantageous way to structure the sale for tax purposes. For
example, advance recognition of the tax implications of a "C" corporation requires that negotiations be positioned
toward a deal structure that would minimize a seller’s tax exposure.
APPRAISALS. For equipment intensive businesses or transactions in which real property will be included in the
transaction, independent appraisals of the equipment and/or the real estate prior to beginning the sale process is
highly recommended. Appraising these assets will help in the valuation and planning process prior to going to market.
The buyer will likely need to have these assets appraised and being prepared will foster integrity by presenting these
assets with accurate market valuations.
GROWTH PLAN. A well thought out and realistic plan for growth can greatly enhance the value of a company. It serves as
a road map to expansion opportunities that a new owner could exploit with additional capital or other resources that it
may bring to the table. The plan should assume that significant capital resources will be available after the sale and
identify areas where historic sales were constrained due to capital limitations. It is likely that the acquirer will be
better capitalized than the current owner and have enhanced capabilities to act on these opportunities. Whether it is
limited desire, burn out, or lack of capital resources holding the business back, it is critical to develop a well-defined
plan that identifies the most realistic expansion opportunities. The more untapped expansion potential, the greater
perceived value the business will have to a potential acquirer.
TACKLING "DEAL KILLERS" EARLY ON. If there are issues that may potentially jeopardize a transaction, a seller is ill served
by “hiding his or her head in the sand”. Eventually these issues will surface and it is far better to be prepared and
address them during the management presentation from a pro-active viewpoint, rather than have to take a defensive
posture when they are independently discovered. Such "deal killers" may include a lease that needs to be negotiated,
property to be cleaned up, equipment to be replaced, financials to be revised, pending litigation, key employee
retention, customer retention or concentration, etc. Addressing these issues in a timely and forthright manner avoids
spending months identifying qualified acquirers only to have the deal "crash and burn". There are a variety of ways to
disclose, present and/or remedy these issues prior to or during the initial marketing phase. Buyers have a greater
willingness to proceed with the deal if they feel the seller has been honest in disclosing the "skeletons in the closet"
from the outset. The worst situation is for a potential buyer to discover these issues on its own and wonder what other
negative surprises may exist.
2 RKJ PARTNERS, LLC: SELL-SIDE M&A OVERVIEW
3. ADDRESSING KEY DEPENDENCIES. Reducing key dependencies in a business will serve to increase the marketability and
value of a company. Three key areas include customers, vendors and employees. Customer dependency exists when
a high percentage of the company’s revenue is derived from one or a few large customers. Vendor dependency
results from difficulty finding comparable vendor replacements, if needed. Employee dependency exists when the
business is highly dependent or held hostage by key employees or the existing owner, whose departure could severely
impair the business. These dependencies create significant risks for an acquirer and can have a negative impact on
valuation. With advanced planning and focus, the negatives associated with these dependencies can generally be
mitigated.
ENVIRONMENTAL. It is the responsibility of the seller of a business to obtain required environmental clearances prior to
the closing of a business sale. This generally applies to businesses subject to environmental scrutiny such as
manufacturing businesses or firms routinely dealing with hazardous substances. If a company’s standard industrial
classification (commonly called the SIC code) triggers the need for this clearance, it is essential to understand in
advance the presence of any existing issues. This can be accomplished by hiring an environmental consultant to
perform a Phase One study that will identify any environmental concerns. Given that environmental due diligence is a
requirement, it is best to address it early in the process. The absence of advanced planning could lead to months of
unnecessary delay that can jeopardize deal momentum, financing and ultimately the deal itself.
THIRD PARTY FINANCING. It is important to ascertain the likely level of financing available to an acquirer in advance. This
will help qualify potential buyers as serious prospects and determine if the necessary capital will be available to
consummate a transaction. For example, assume an acquirer will need $1.5 million in available cash for the initial
investment and working capital requirements. If it is determined that a bank is likely to lend a reasonably qualified
buyer $600,000, then a buyer must be identified with at least $900,000 in available capital and good credit. If a
bank is only willing to commit $300,000, it will be necessary to find a financially stronger potential acquirer. Not
being armed with this knowledge in advance often leads to wasted time and jeopardizes confidentiality with
unqualified acquirers.
CARVE OUT EXCESS ASSETS. One method of increasing a seller’s total financial yield from a transaction is to identify
excess assets that can be converted into cash prior to a transaction, without adversely impacting the business. For
example, assuming a company has accumulated $450,000 of inventory but only requires a $250,000 level. The
seller can generate an additional $200,000 by converting the "excess" inventory to cash prior to the closing.
LIKELY ACQUIRERS. Advance research within an industry can determine if it makes sense to approach companies in a
related business seeking additional sales, territories, capabilities or complimentary revenue centers. These "strategic
buyers" may have a strong desire to acquire a similar or related business as a means of growing through acquisition
or because they may recognize the synergies that will result from the combination of the two companies. By
identifying likely prospects, the search for an acquirer can be more tightly focused in a direction that can maximize
the overall deal value.
TEAM OF PROFESSIONALS. Before entering the uncharted waters of selling a business, it is imperative to select the right
team. This includes a qualified CPA, an attorney with a background in corporate transactional work and an
experienced M&A intermediary. Ideally, all of these parties should have specific experience with the business sale
process and some level familiarity with business for sale. All parties should meet in advance since their efforts will
need to be coordinated later in the process. This will ensure that all team members are on the "same page" and have
a clear understanding of the goals and expectations of their mutual client.
CURRENT SALES PERFORMANCE. An often overlooked area that has a major impact on marketability of the business is the
company’s current financial performance. The 12-month period during which the sales process is taking place is a
decisive one. If sales performance deteriorates during this period, marketability and value will be negatively impacted.
Current performance often has greater significance to a potential acquirer than the previous 20-year track record. The
business owner must focus his or her efforts on whatever can be done to maintain consistent (or improve) sales,
margins and profits during this period. Working with a qualified M&A intermediary to manage the sale process is a
vital component of the sale process because it allows the business owner to maintain focus on the business at hand.
An experienced intermediary will handle the time consuming intricacies involved in the proper packaging,
presentation and negotiation of a business sale transaction.
3 RKJ PARTNERS, LLC: SELL-SIDE M&A OVERVIEW
4. III. DUE DILIGENCE PROCESS
Due diligence in the context of a business sale is the process that a buyer goes through to verify that the
representations about a company made by a seller are materially accurate. Buyers seek to satisfy
themselves and their stakeholders as to the current condition of the business, thus reducing the chance of
any post sale surprises.
It is common for a buyer to make a purchase offer based upon general financial and operational data that has been
supplied during the marketing phase of the sale process. For confidentiality reasons, these representations are all
that a seller should be expected to make until such time as there is a "meeting of the minds" or a business agreement
between the parties. Such an agreement should include purchase price, terms and transaction structure and will
generally be confirmed in a Term Sheet or Letter of Intent, signed by both buyer and seller.
Performing financial due diligence prior to a price and terms agreement would be putting the "cart before the horse".
A seller should only divulge sensitive information about his or her company if it is known that there is a financially
acceptable transaction in place. Buyers typically want to perform due diligence prematurely, so as to minimize their
risk in proposing a deal. Allowing this process to begin before a formal offer is made is one of the most common and
costly mistakes that an inexperienced seller makes. A seller’s primary objective in due diligence is to emerge with the
deal intact (i.e. with no revision in price or terms). A seller can maximize the probability of a successful outcome by
preparing for the due diligence process. It is critical that the seller receive in advance, a due diligence checklist from
the buyer, to facilitate having the information organized and ready for review. Well organized and complete
information increases the seller’s credibility and a buyer’s confidence in the business. If a seller notices any
inaccuracies during this preparation phase it is preferable to bring it to the prospective buyer’s attention in advance
to preserve credibility. In the event certain negative information turns up during due diligence, one of three things will
happen: The buyer may be willing to follow through with the agreed upon price and terms anyway; The buyer may opt
to pull out of the transaction; or the buyer may agree to proceed with the transaction conditioned upon renegotiating
price, terms or deal structure. Typically, unless material information was omitted or misrepresented in the marketing
phase, deals that were properly prepared emerge from due diligence relatively unscathed.
Due diligence can be classified as external or internal. External due diligence relates to industry factors such as
economic conditions, demand forecasts, trends, pending legislation, industry risk factors, expansion opportunities,
new technology, competition, etc. and are not company specific. External due diligence can and should be done by
the buyer at an earlier stage since it is not reliant on specific company information and is not sensitive or intrusive to
the company.
Internal due diligence relies on information specific to the subject company. The following are the most common
areas reviewed: Financial – accuracy of financial statements and recast profit adjustments; Tax & Payroll – up to
date and historical tax filings; Operational – general business structure and risks; Inventory – confirming no stock
obsolescence; Legal – existence or status of any lawsuits; Regulatory – compliance with applicable agencies;
Environmental – ISRA compliance; Employees – status of key employees; Customers – in good standing and likely to
remain post transaction, etc. Certain aspects of due diligence are more sensitive than others. Customer and
employee due diligence typically fall under this category and should be put off as an end phase of the process. It may
be the final step prior to closing, perhaps after contracts are signed and all other contingencies have been satisfied,
including any required financing. This affords the seller a comfort level that once this final aspect of due diligence is
addressed the deal will immediately proceed to closing, assuming there are no significant unexpected findings.
Every due diligence varies depending upon the complexity of the company, size of the transaction, the specific buyer
and a buyer’s familiarity with the industry and company. The process can range from a few hours to several business
days. If an "insider" such as an employee is buying the company, there may be little need for due diligence since he or
she is already intimately familiar with the business. In summation, due diligence is an inevitable part of the business
sale process. To insure that everything will go smoothly, make sure that all representations made during the selling
process are materially true and correct. Take the time to properly prepare for due diligence and keep in mind that as a
seller, your goal is to survive it with your deal intact.
4 RKJ PARTNERS, LLC: SELL-SIDE M&A OVERVIEW
5. ABOUT RKJ PARTNERS, LLC
RKJ is an established advisor to leading lower middle-market growth companies. We provide our clients with
experienced-based solutions and unbiased advice. Our comprehensive array of strategic advisory and execution
capabilities allows us to meet the needs of our clients and provide an outstanding level of service in connection with a
variety of transaction processes, including:
❖ CAPITAL ADVISORY: RKJ possesses substantial expertise in assisting lower middle-market clients raise capital to
fund growth strategies. Whether the capital source is senior debt, mezzanine/subordinated debt, private equity,
or venture capital, RKJ has both extensive and relevant relationships within the capital community to enable the
deployment of optimal solutions for our clients.
❖ MERGERS & ACQUISITIONS: RKJ serves as a trusted advisor in executing merger and acquisition transactions for
lower middle-market clients. In addition to our significant investment banking transactional experience, RKJ’s
bankers have owned businesses and have served in interim CFO roles for clients. As a result of our experiences
as business owners and senior level managers, RKJ’s bankers are able to bring a unique perspective to the
mergers and acquisitions process. RKJ’s mergers and acquisitions services include:
Buy-side and Sell-side Advisory
Divestitures
Leveraged & Management Buyouts
❖ STRATEGIC ADVISORY: RKJ provides financial advisory services to owners, management, shareholders and their
boards to assist in the evaluation strategic alternatives and options for extending and/or maximizing shareholder
value. RKJ’s advisory services include:
Business Valuations
Capital Structuring & Planning
Negotiating Joint Ventures
Strategic Business Development
5 RKJ PARTNERS, LLC: SELL-SIDE M&A OVERVIEW