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A CFO´s guide to transaction readiness

The significance of valuations and the caliber of earnings have always been a top focus for any chief financial officer (CFO) involved in a merger and acquisition (M&A) transaction or preparing an initial public offering (IPO). Investors and acquirers are seeking a deeper grasp of earnings quality, and auditors are becoming more scrutinizing of values due to the economic turmoil and business uncertainties of 2020 and 2021.

Private sellers increasingly sought independent accounting firms to create the sell-side quality of earnings reports, even before they placed their business up for sale, to maximize deal value and eliminate issues that could obstruct a deal.

The U.S. Securities and Exchange Commission (SEC) pledged significant regulatory improvements as particular purpose acquisition company (SPAC) combinations hit historic highs in 2021. For example, they want financial statement reporting in business combinations combining a shell company and a private target, more like regular IPOs.

This article will serve as a tool for CFOs, underlining the crucial due diligence and valuation issues they should be aware of for private M&A, IPO, and SPAC deals, given the significance of the quality of earnings and deal prices.

It will provide more detail about how M&A, IPO, and SPAC transactions differ in terms of financial instruments, goodwill recognition and impairment testing, and equity-based compensation benefits. Additionally, it will look at the valuation standards for SPAC financial instruments such as founder shares, public and private warrants, and private investments in publicly traded companies (PIPE).

The article will also cover how to maximize the value of private transactions for buyers and sellers by working with the proper external partner to reduce deal risk.