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The People in Your (Dealmakers) Neighborhood: Part 1, Meet Your CPA

The Anatomy of a Deal Newsletter

If you’re like me and grew up watching Sesame Street, you’ll no doubt remember this catchy tune. Now that I’ve got that song stuck in your head, we’re going to spend the next few months of Anatomy of a Deal introducing you to some of the professionals who make up the “Dealmakers’ Neighborhood” and the specialized expertise, experience, and, most importantly, the value that they bring to the table.

Just like the Sesame Street neighborhood, it takes a number of skilled people to make a deal happen successfully. Anyone who tells you that they’re a “one-stop-shop” for all facets of completing a deal is probably not the advisor you want. Remember the old saying: jack of all trades, master of none.

This month, we’ll kick off our walk through the Dealmakers’ Neighborhood by introducing you to the CPA. Over the years, I’ve had great experiences with many talented CPAs who truly live and breathe M+A deals on a daily basis…and, unfortunately, some not-so-great experiences with those who don’t. In the cases where things haven’t gone so well, it’s usually because the client’s CPA—while clearly possessing great expertise in helping the client with day-to-day needs—wasn’t well-versed in the unique issues that present themselves in an M+A transaction. So even buyers and sellers who already have a trusted CPA helping them operationally would be well-served to find a CPA with a specialization in transactions to help navigate an M+A deal.

To help provide some firsthand insight into the CPA’s role in transactions, I’ve invited our friend and deal pro Kaz Unalan from GBQ Partners to share his thoughts on how the right CPA can not only help you get the deal done smoothly, but also add real value to both buyers and sellers.


Mergers and acquisitions take an immense amount of planning if they are to be successful. No one deal is the same, so having a transaction team full of experts is critical for success. A key member of that team is your CPA. From strategy to execution, the CPA’s role is to help identify and mitigate risks related to the transaction.

The CPA’s Role

At a high level, the CPA’s role is to assist the transaction team to bridge the gap between financial data presented under Generally Accepted Accounting Principles (GAAP) or other methods to what the practical economic value and risks are. The CPA is also critical in providing value from a tax perspective in identifying efficient tax structures and identifying unknown tax risk. Significant value can be gained or lost on both of these points. The earlier you can get your CPA involved in a transaction the better. Generally speaking, the CPA would perform procedures and/or advise on the following:

  • Potential “deal breakers”
  • Quality of earnings and assets
  • Contingent liabilities
  • Tax structure and diligence
  • Working capital targets/calculations
  • Potential synergies
  • Operational risks and opportunities
  • Assessment of key assumptions in financial projections
  • Appropriate transaction structure and price
  • Issues to address in the definitive agreement
  • Need for hold-backs, escrow, or earn-out provisions
  • Financing strategies

The most common areas in which a CPA would get involved include confirming the integrity of the financial data by providing a “quality of earnings” analysis, quantifying working capital targets, and overseeing tax due diligence and structure.

Quality of earnings analysis (often referred to simply as “Q of E”) or financial due diligence is an engagement to validate earnings before interest, taxes, depreciation, and amortization (EBITDA). In very simple terms, the Q of E will confirm the cash flow of the business, which is a main driver of transaction value in most deals. In addition to that, the Q of E will validate the balance sheet, determine if there are unrecorded liabilities, identify customer concentrations/seasonality, adjust for one-time revenue or expenses, etc. The industry, size, and complexity of the business will also dictate focus areas of the Q of E. This information can be helpful in identifying areas of potential risk before they become major deal points.

Working capital targets are another area that can be very complex and full of surprises in the transaction world. Typically in transactions, buyers and sellers arrive at the purchase price by multiplying the selling company’s EBITDA by an agreed-upon multiple. Before the deal closes, however, the seller can manage the company’s assets and liabilities in ways that reduce the company’s future cash flows without affecting its EBITDA or, in turn, the purchase price. To protect the buyer’s interest in those future cash flows, many M+A transactions include a working capital target. The working capital target should be defined as part of the agreement, but can be very complex as some deals include/exclude cash, debt or certain assets and liabilities. Your CPA is key in understanding this aspect of the deal to avoid unintended consequences or surprises.

Tax due diligence and structure is another area that the CPA would typically get involved in. Tax diligence is critical to understand what risks may or may not exist from a tax perspective. Typical tax issues uncovered in diligence are unrecorded state and local income tax liabilities, sales/use tax liabilities and uncertain tax positions. I have seen deals come to a screeching halt because of these items. It may require additional holdbacks until the issues are resolved. These items can be dealt with up front and can save time and real dollars.

Tax structuring is an area that can have a meaningful impact to a seller. Understanding the different tax implications of an asset versus a stock sale is a great example of where value can be gained or lost in a deal. Doing extensive tax planning from start to finish to identify implications of structure is key for the seller in understanding after-tax proceeds. This type of consulting can add real value to a deal.

The areas discussed above can be done from both a buy-side or sell-side perspective. Most view these services as something performed by a buyer entering into a transaction; however we are seeing more and more businesses doing these “self-assessments” before taking their companies to market. This is often referred to as sell-side due diligence. Sell-side due diligence can add significant value to a business by getting “the house in order” prior to a transaction.

How to Find a Deal-Focused CPA

As discussed above, the role of a CPA can encompass many different areas of a transaction. There are many nuances to a deal, so it is extremely important to engage a CPA that has extensive transaction experience. Many business owners have an outside CPA they have used for financial statement audits, tax compliance, or tax consulting, but transactions are a whole different world. There is definitely a role for the legacy CPA to get the transaction team up to speed, help from a historical perspective and assist with some planning, but unless they check all of the boxes below, you should find a CPA partner that does in order to minimize deal risk and maximize your value.

Here’s what to look for.

  • Professional qualifications and deep transaction knowledge and experience – Having a CPA advisor who has seen and knows deals will avoid costly real-dollar mistakes, avoid deal delays, and add sophistication/credibility to your team. The value provided will more than outweigh the cost.
  • A full transaction team with deep resources – Finding a CPA that has the time and resources to dedicate to transactions is critical. Once the process has begun, things move very quickly, so being available, responsive, and knowledgeable is paramount. There is no time to bone up or learn new things related to the transaction. Having a CPA partner with a deep bench and expertise outside of general accounting and tax services is also key. Ancillary issues related to valuation services, state/local taxes, IT, and employee benefits often arise. Your CPA partner should offer those transaction advisory services too.
  • Previous experience with other transaction professionals – Transactions are a process and not an event. Your CPA advisor will be part of a team of professionals that is working for your best interest. Being in that world and having a working relationship with others in the transaction space goes a long way in collaborating and making it as smooth as possible in order to get you the best results.
  • A seamless cultural and relationship fit – Just like choosing any of your advisors, find someone you are comfortable with and can relate to. Having someone you truly trust who can clearly explain the nuances is key in such a complex event. You want to be comfortable and have a clear understanding of things.

Those on the sell-side already have day jobs, so putting together a transaction team that has the time and expertise to dedicate, navigate and execute a transaction can’t be overlooked. The sooner you can select your team and engage them the better, including your CPA advisor.

As you think about choosing the right CPA advisor for a transaction, there is a good analogy to keep in mind. You wouldn’t go to your family doctor for a torn ACL, the same way you wouldn’t go to your orthopedic surgeon for a cold. So why would choosing your CPA advisor for a transaction be any different?

Next Month: The People in Your (Dealmakers) Neighborhood: Part 2, Meet Your Investment Banker

Read last month’s piece: Post-Closing Integration in a Mad (Men) World

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