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Accountants should be involved “early and often” in the M&A process
Written on Oct 12, 2023
By Jessica Salerno-Shumaker, OSCPA senior content manager
Accounting for and treatment of working capital is an integral part of the mergers and acquisitions process, and one attorney said it’s an area CPAs can leverage to offer more value to clients.
“It is most beneficial to clients when CPAs are involved early and often in the working capital due diligence process,” said Dustin J. Vrabel, partner and mergers and acquisitions practice leader at Buckingham, Doolittle & Burroughs, LLC.
“The basic accounting principles and defined terms for working capital are often misunderstood - and that's where I see significant risk for post-closing disputes in the purchase or sale of a business,” Vrabel said.
He will present “The Intersection of M&A and Accounting - Where the Value Lies,” at the Ohio Accounting Shows covering methods for improving due diligence, understanding of stock and asset purchase agreement nuances and the intersection of M&A law and financial accounting.
“One area where attorneys and clients sometimes fall short is not involving accountants in what most people think are boilerplate accounting terms in acquisition agreements,” Vrabel said.
M&A documents are lengthy with specific bespoke accounting terms and Vrabel said, “they have a real impact on the value that’s paid or received for the business.” If a term is misunderstood or lacks clarity, it can be a point of contention later on.
The way the documents are set up means many factors could play into the final purchase price, potentially differing from what a client originally tells their CPA firm.
During the presentation, Vrabel anticipates receiving questions on the intersection of representations and warranties and indemnification claims when there is a purchase price or net working capital post-closing adjustment.
The future of M&A will evolve as the economy adjusts to the “silver tsunami,” Vrabel said, as the retirement of millions of Baby Boomers means immense wealth transfer through succession planning and M&A.
“Accountants will see more of their clients or potential clients coming to them for advice on how to prepare their business for sale,” he said. “And as that area continues to grow it's important for accountants to have a full understanding of how working capital provisions intersect within the purchase agreement, to be part of a transaction team with an M&A attorney and investment banker or broker to help close a transaction.”