Improving your M&A Team in 2025
Navigating an M&A transaction is complex, but an experienced business valuation professional can provide critical insights at every stage—from preparation to post-merger integration. By leveraging expert guidance, businesses can ensure a smoother process, better deal terms, and long-term financial success.
Mergers and Acquisitions Surge Expected in 2025
Global mergers and acquisitions (M&A) are on track to exceed $4 trillion in 2025, marking the highest volume in four years, according to reports. The increase is driven by recent Federal Reserve interest rate cuts and potential regulatory and tax reductions promised by policymakers. Additionally, proposed tariffs could encourage industry consolidation in certain sectors.
If your business is considering an M&A transaction, working with a business valuation expert can streamline the process and help maximize value.
Preparing for a Business Sale
Prospective buyers focus on a company’s core strengths, so streamlining operations is key. Nonessential elements—such as underperforming segments, nonoperating assets, shareholder loans, and minority investors—can complicate negotiations. An experienced valuation professional can assist sellers in optimizing balance sheets and structuring income statements to enhance the company’s appeal and selling price.
Private business sales often hinge on earnings multiples or EBITDA (earnings before interest, taxes, depreciation, and amortization). Proactive strategies—such as reducing unnecessary expenses, limiting related-party transactions, and improving operational efficiency—can enhance profitability and reduce the need for adjustments during negotiations.
Beyond financial statements and tax returns, a well-prepared offer package can be a game-changer. However, before sharing any sensitive business details or allowing facility tours, sellers should consult legal professionals to draft confidentiality agreements to safeguard proprietary information.
Due Diligence in Acquisitions
Thorough due diligence is a critical step in ensuring a successful M&A deal. While buyers typically review the last one to three years of financial performance, it’s equally important to assess non-financial aspects. Depending on the industry, buyers may request:
- Marketing materials and branding strategies
- Business plans and financial forecasts
- Fixed asset records and inventory lists
- Working capital assessments
- Quality of earnings evaluations
- Customer concentration reports
Examining key contracts—such as leases, insurance policies, franchise agreements, non-compete clauses, and loan documentation—is also crucial. Valuation professionals play an essential role in uncovering hidden liabilities and risks that could impact deal value. They also help adjust EBITDA for items such as above-market salaries, luxury expenses, and personal expenditures, ensuring a fair valuation.
Structuring the Deal
When there is a gap between the asking price and offer price, creative structuring can help close the deal. One effective tool is an earnout provision, where a portion of the purchase price is contingent on meeting specific financial milestones over time. This approach mitigates risks for buyers while incentivizing sellers to ensure a smooth transition.
Buyers may also require sellers to remain involved post-sale, often as a consultant or executive for three to five years, to support the leadership transition. Additional structuring options include seller financing, installment sales, and equity participation, which are common in management buyouts and joint ventures.
Tax considerations also play a significant role in deal structuring. Terms such as installment payments, consulting agreements, and asset versus stock sales can impact tax obligations for both parties. Consulting a valuation professional can help minimize tax liabilities and optimize the financial outcome.
Managing Post-Merger Integration
For a successful merger, the integration of teams, policies, and operations must be carefully managed. Key challenges include:
- Aligning administrative policies and operational procedures
- Standardizing employee benefits, contracts, and policies
- Deciding on facility consolidations or closures
- Streamlining roles and responsibilities
- Choosing a unified IT and financial reporting system
- Identifying assets or divisions for divestiture
Negotiating supplier, customer, employee, and lender agreements post-deal is another essential step. In some cases, buyers may need to secure consent to transfer contracts to new ownership.
Financial and Tax Considerations After Closing
After an acquisition, companies must merge financial statements and tax filings, which often requires selecting consistent accounting methods, software, and reporting procedures. If the entities previously used different accounting treatments, restating financial statements or amending past tax filings may be necessary.
Enterprise resource planning (ERP) system integration is another challenge. A lack of synchronization can lead to data discrepancies and financial reporting delays. Furthermore, purchase price allocation and intangible asset valuation must be handled correctly to prevent unnecessary write-offs in the future.
Tax implications extend beyond standard reporting. For example, parachute payments to departing executives could trigger IRS scrutiny and tax liabilities. Additionally, changes in business location post-merger could impact tax rates, while consolidating employee stock options might have unexpected tax consequences.