Tips For Mergers And Acquisitions Of Accounting Fees

If you are looking to make a Mergers and Acquisitions or M&A, it's important to know the accounting fees involved. This is because they will vary depending on what type of business you're purchasing and how much equity value.

Transparency can also be an issue with this process, so it's good to discuss these concerns before the purchase occurs. Fortunately, we have compiled some helpful tips for your consideration when considering buying another company in order to acquire their assets and revenue stream.

If you are in the accounting field or have an interest in it, there may be a good chance that your job will involve being involved with mergers and acquisitions one day.

Whether this is for your own company or another business, understanding how to do these types of transactions can help save time and money. Here are some tips on what you need to know about M&A when it comes to accounting fees.

There are many things to consider when deciding to merge or acquire a company. The complexities of accounting fees can be confusing and time-consuming, but they don't have to be fraught with worry.

Here's a guide for understanding the accounting fees you'll need in order to complete a merger or acquisition successfully.

Tips For Mergers And Acquisitions Of Accounting Fees

While organic growth may take some time, mergers and acquisitions can provide a successful way to amplify growth rapidly in terms of both staff and client base.

It sounds like a no-brainer to hunt down competitors looking for a way out and to take over their company. But mergers and acquisitions aren’t always easy sailing.

Ensure The Retiring Partner Still Has An Interest In The Business

While a walk-in, walk-out transaction sounds like it would be the easiest option, it can, in fact, turn out to be a nightmare. If the retiring partner has mentally checked out of the business prior to sale, the execution of hand-over can suffer.

Often, employing the existing partner for at least the first 12 months following the transaction works significantly better and allows for greater continuity for the clients and the existing staff.

Sometimes, the retiring partner may have been trying to exit for some time and thus not providing their clients with the customer service levels you would expect. It is very hard to win the clients over as they are already looking elsewhere and might as well change.

Business owners who are looking for a succession plan for genuine reasons, such as retirements or location changes, but still want to see the business succeed are more likely to continue the relationship with the client and offer them great service, which helps ensure a seamless transition.

Look For Similar Systems

Ensure they operate with similar systems and procedures as much as possible. For example, if you offer fixed billing and they use timesheets, it is difficult to roll out this new way of billing to their existing clients.

You run the risk of losing clients who may not be happy with being switched over, which reduces the value of the merger straight away.

It’s important to minimise the number of changes you make upfront so as not to disgruntle clients and staff.

Same with accounting systems and workflow products. If you only use Xero and merge with a firm that solely uses MYOB, clients need to be migrated over to the new platform, which may prove to be too much of a change for some after years of using a certain system that works well for them.

Choose Location Wisely

Do not try and span a distance that is too great geographically, or else clients and staff will feel unloved and that it’s too far. Whilst cloud technology allows all work to be completed from any location, on any device, nothing beats face-to-face interaction, so the office location must be still within reach for clients.

It helps to instil faith in clients that they are still valued and that you’re close-by if need be. In addition, it’s important to offer quarterly/monthly catch-ups with clients to gain some great insights and feedback from them, which often doesn’t happen if the communication is only over email.

It’s important not to disregard the value of personal interactions with clients, so try to ensure the office is in close proximity to your client base to help achieve this.

Happy Staff = Happy Business

When merging or acquiring a business, the staff are the greatest asset that you are bringing over, so ensure they are the right fit for your company.

Ask a lot of questions regarding their values to help understand if they will be a good fit to transition into your existing business.

Culture is a big deal within certain companies, so if you have a strong culture, there’s no point merging with a company and taking on their staff if they are the complete opposite of your existing staff base. It may result in conflict between staff members, which can only be a negative thing and may affect the service clients are receiving.

Ensure you dedicate time to getting to know the new staff members. It’s a big thing for them when their place of employment is being taken over, so spend time re-assuring them that the merger is a positive venture and outline the benefits they’ll experience.

Have A Proven Roll-Out Plan In Place

The saying failing to prepare is preparing to fail rings true when it comes to acquisitions. Planning is crucial, and having a solid roll-out plan right from the beginning helps build trust and shows that you know what you’re doing.

This plan should include allocating time to spend with staff, contacting all clients to introduce yourself, and having set stages to implement any required changes.

Whilst you may be eager to get to work straight away with getting your systems and procedures in place with the acquired business, it’s not effective to make sudden changes, so ensure this is gradual.

A great way to meet clients is to organise a sundowner. It’s effective in providing a casual environment to introduce yourself and the company, and give clients the opportunity to ask any questions or express any concerns they may have. On top of that, it’s the perfect opportunity to promote any additional services your business may be able to offer them.

Ensure Everything Is Documented

Ensure everything is documented and a full assets register is included in the contract. You don’t want to be stuck with additional costs, so draw up a contract and go through it with a fine-tooth comb.

Each merger or acquisition will be different, but the key is to have a procedure in place, allowing for flexibility where needed.

Mergers and Acquisitions and Purchase Accounting (M&A)

When companies decide to join forces in order to accomplish their corporate goals, this type of transaction is known as a merger or an acquisition (M&A). A company will purchase the assets, recognisable business areas, or subsidiaries of another company in the process known as an acquisition. A merger is when one company completely acquires another company and combines its operations. In each scenario, there is a conglomeration of different companies. Special accounting practises often accompany business combinations such as mergers and acquisitions. The purchase accounting process will be covered in this handbook for mergers and acquisitions.

A Business Combination To Consider

Synergy is the primary goal that should be pursued in the context of a corporate merger or acquisition. In the course of the combination, the acquirer intends to attempt to take control of the acquiree. When it comes to structuring an M&A transaction, numerous legal, taxation, and other business-related tactics may be utilised. When analysing a merger or acquisition (M&A), one frequent way is known as the acquisition method. In this method, the transaction is examined from the point of view of the combining firm, which is known as the acquirer. The acquirer takes full control of the acquired company's assets, liabilities, and any other aspects of the acquiree's business that are relevant to the operations of the acquired company.

Find the Acquirer in Purchase Accounting

There is always an acquirer in every business combination; this is the party that keeps control of the combined entity in every business combination. In every business combination, there is always an acquirer. One definition of control states that it is "the power to manage the financial and operating policies of an entity or business in order to derive advantages from the actions of that entity or business."

Though a majority interest does not constitute control, then one entity is not considered to have gotten control even if it has acquired more than half of the other entity's voting rights. This is the case in the majority of combinations. Although it may be difficult to identify an acquirer in a merger and acquisition transaction, some of the following may be signs of the acquirer:

• It is most likely that the acquirer will be the entity whose fair value is higher, if there is a considerable disparity between the two; or
• It is expected that the acquirer will be the party that contributes cash or other assets to the transaction; or
• It is highly likely that the acquirer will be the organisation whose management is the undisputed market leader in the transaction.
• These are only some of the many elements that could be considered while evaluating control. When choosing which corporation will have the authority to administer the merged company, there are a number of considerations to take into account.

In addition, there are also things called reverse acquisitions. The entity whose equity interests have been bought is known as the acquirer in a reverse acquisition, while the entity that is receiving the equity interests is known as the acquiree. For instance, in order to achieve a listing on a stock exchange, a private company might make the necessary arrangements for itself to be "bought" by a more modest public company. In point of fact, the private organisation is the acquirer if it possesses the authority to regulate the financial and operational policies of the legal parent. It is important to note that the larger of the two corporations does not necessarily need to be the acquirer.

Purchase Accounting: Calculate the transaction's cost

The following components contribute to the overall cost of combining two businesses:

• The fair valuations, as of the date of the acquisition, of all of the acquirer's assets, liabilities (whether they were incurred or assumed), and equity instruments; plus
• Any expenses that can be directly attributed to the merger of the businesses.

The date that control of the acquired company is officially transferred to the acquirer is referred to as the "acquisition date." At the time of the acquisition, the acquirer is required to measure all of the assets obtained and liabilities incurred or accepted by the acquirer at their fair values. The fair value of any component of a combination's cost that is deferred is determined by discounting the amounts payable to their present value as of the date of acquisition, taking into account any premium or discount that is likely to be incurred in the settlement. If any portion of the cost of a combination is deferred, the fair value of that deferred component is determined.

Fair Value Guidance

With very few exceptions, the conventional technique for estimating an equity instrument's value is the published price on the day it was traded because it provides the most accurate picture of its value. Only if the acquirer can show that the published price at the exchange date is an unreliable predictor of fair value and that these additional evidence and valuation methodologies measure fair value more accurately than the published price did at the exchange can they be taken into consideration. Then additional ways of appraisal should be taken into account. The fair value of those instruments can be estimated, for example, by referring to their proportional interest in the fair value of the acquirer or the proportional interest in the fair value of the acquiree obtained, depending on which measurement gives a clearer picture of the situation, in the event that the published price at the time of the exchange is an unreliable indicator.

Costs directly associated with the business combination

Professional fees paid to the following parties can be directly attributed to a combination:

• Accountants
• Legal advisers
• Various evaluators and experts whose input is important to the combination

The costs are considered to be expenses during the duration of service in accordance with the new M&A purchase accounting rules. When they are incurred, charges associated with general administration are counted as an expense. The cost of the combination does not take into account general administrative costs such as the maintenance costs incurred by the acquisitions department that cannot be directly attributed to a specific combination. Instead, they are recorded as expenses as they are incurred. The cost of a business combination does not take into account the costs that are incurred when dealing with financial liabilities. They ought to be factored in, instead, during the preliminary estimation of the obligation.

Contingent and Deferred Acquisition Costs

There are several situations in which the expenses of the acquisition are not only postponed, but they may also be reliant on occurrences in the future. Such occurrences are frequently connected to the future prosperity of the business that was acquired. In the event that the payment is likely and can be assessed accurately and dependably, the contingency will be factored into the cost of the transaction. When determining the value of deferred consideration, it is necessary to discount it back to its present value. Take the following illustration for instance:

Jenas PLC has completed the acquisition of the entirety of Shearer Ltd.'s ordinary share capital. Shearer has been successful, generating an annual nett income that has ranged between $2,950,000 and $3,250,000 on average over the course of the last eight years.

As a component of the price of the acquisition, Jenas committed to pay an additional one million dollars to the people who had previously owned Shearer if the company's nett income level averaged more than three million dollars over the course of the next three years.

Given Shearer's track record of profitability, it is highly likely that the payment will be delivered in three years' time. [Case in point:] As a result, the delayed contingent compensation will be factored into the total cost of the acquisition on the date that the transaction is finalised.

If at any time there is evidence to suggest that the deferred contingent payment will not be paid (or that it is not probable that it will be paid), then the cost of the acquisition should be changed, and a subsequent revision should be made to goodwill.

Being purchased by the acquirer through the use of equity that was issued by the acquirer presents its own unique set of hazards for the shareholders of the acquired company. For example, the acquiree runs the risk of the equity instruments issued by the acquirer decreasing in value after the acquisition. In certain acquisitions, the acquirer makes a commitment to the acquiree to distribute additional stock instruments to the acquiree in the event that the fair value of the equity instruments that were initially provided as consideration for the purchase falls below a certain threshold.

Overview of M&A Costs and Strategies for Reducing Them

During the M&A process, one-time charges are frequently disregarded as irrelevant.

This is evidenced by the fact that numerous M&A guidelines discuss all-encompassing "M&A pre-transaction costs" and "M&A post-transaction costs."

When it comes to value development, mergers and acquisitions (M&A), cutting costs is just as important as bringing in more money.

Therefore, it is of the utmost importance for anyone engaging in a transaction to have a strong hold on costs before they come up, in order to guarantee that you will be able to minimise them when they do.

It is obvious that the degree to which each of the following M&A expenses will have an effect on your deal will vary depending on the nature of the agreement; however, it is realistic to anticipate that almost all of them, if not all of them, will arrive at some stage of any business purchase.

When you are organising your next transaction, you should make sure to have an approximate estimate of the costs associated with each step as you go.

You are essentially conducting a cost-benefit analysis of the transaction by doing so, which will enable you to determine whether or not it will result in value being created.

Fees for M&A Advisors

If you have already found a company that you are interested in purchasing, it is possible that you will not require the assistance of a middleman in order to complete the transaction.

A retainer fee is something that is often charged by bankers, and the lowest possible amount is a few thousand dollars per month. Then there is the commision, which is normally an additional five percent of the total fees paid by the buyer on the other side of the transaction.

You may probably already guess why people are paying so close attention to these payments.

How to cut down on expenses:

The best course of action is to determine what value a banker can provide to your transaction and whether or not this value justifies the additional expense.

On a more granular level, you may still be curious about "just how much do M&A advisors really cost," which is a perfectly reasonable question. The amount of a retainer will often range between $50,000 and $200,000. In addition to these retainers, businesses need to be prepared to pay success fees, the amount of which is determined by the size of the deal. The larger the transaction, the less significant the percentage change became.

For transactions with a value of less than $5 million, the percentage will normally fall somewhere between 10 and 12%. On the other side, if the business transaction is quite a little larger, say more than $25 million, the percentage drops to anywhere between 2% and 4%.

Transactional Costs

When we talk about the costs that are associated to the deal, we are referring to the many costs that have a tendency to pile up as a result of attempting to purchase a business. When it comes to mergers and acquisitions, the likelihood of the costs being higher increases proportionally with the degree of complexity of the deal.

Let's say you've decided to expand your business by purchasing a company in another location. That means you and a few other members of your executive team will have to pay for travel expenses. It will be a time of celebration and feasting for the owners of the company that is being acquired. You will be required to make a financial investment in order to utilise the data room software during the procedure.

How to cut down on expenses:

To cut down on these costs, you must first choose what is definitely necessary (wining and eating), what is not necessary (reserving a five-star hotel for your team), and then account for your expenses in accordance with your decisions.