Transaction Advisory Services in a Merger and Acquisition

Advisory

Companies continue to boost their earnings by how well they manage their costs and balance sheets. However, investors still look for ways to increase shareholder’s value. A viable solution for this is through mergers or acquisitions.

The Journal of Finance and Accountancy described mergers and acquisitions (M&A) as the “buying, selling, and combining of companies.” By joining together, the companies involved believe that they can support each other without spending time and capital to form a new unit. After merging, firms can opt to use the name of the acquiring company or the target company, or they can establish a new name.

Sometimes a company will be acquired against its will. This acquisition is called a hostile takeover. It happens when the majority of the outstanding shares of the company are bought by another company.

In 2014, Thomson Reuters reported that the completed mergers and acquisitions in the US were valued at $1.13 trillion. As transactions involving M&A increased, the demands for firms that provided M&A services also increased.

Every firm offers different transaction advisory services. Almost all M&A advisory firms provide due diligence and investment banking services.

Due Diligence

In an M&A, due diligence is a process wherein an acquiring company gathers information that is used to determine the net assets of the target company. Acquirers will then learn more about the company they are purchasing before incurring any risk of ownership.

There are two sides to due diligence: the sell-side and the buy-side.

  • Sell-Side Due Diligence
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As a business owner, selling your company may be the most important act in your career. If the deal pushes through, it is possible that the process will result in financial gain.

In sell-side diligence, the owners will know the value of selling his/her company through:

– Reviewing and Preparing the Financial Statements

To ensure that the accounting policies of the company follow the business standards, an adviser from an accounting firm will assess and help the business owners prepare and conform his/her financial statements. By reviewing the information for possible concerns regarding revenue recognition, quality of earnings, inventory costing, and unrecorded accruals, owners can discover issues that buyers may find when they perform their own due diligence.

– Anticipating the Concerns of Buyers

In the course of the due diligence process, questions regarding operations or projections may be raised by the buyers. Owners will be able to anticipate these issues; however, concerns should not be overlooked. When addressed by the buyers, they will look for valid and reasonable responses.

– Guaranteeing Leverage During the Transaction

Owners can share more comprehensive information with the buyers if they have prepared their due diligence documents beforehand. With this data, interested parties are more likely to bid, which will create a competitive environment.

By disclosing the said details, owners will help potential buyers save a bit of their money, time, and effort while doing their own due diligence.

  • Buy-Side Due Diligence

Buy-side due diligence is usually comprised of an in-depth assessment of the company’s financial statements. Also included are a forecast of financials, an assessment of management and operations of the target company, a glimpse of the company’s customer base and product lines, and a review of legal compliance, among other things.

Investment Banking

Advisory firms offer an array of investment banking services like capital raising, buy side and sell side advisories, and management buyouts.