Mergers & Acquisitions Strategy

There are many aspects of due diligence including financial, tax, asset, human resources, administrative, environmental, intellectual property, and legal. Windes specializes in financial and tax due diligence and works with advisors across other disciplines in merger and acquisition transactions. Windes will work with your internal accounting team on due diligence items and can provide hands-on assistance as needed.

Our financial due diligence and tax services involve providing a complete understanding of a target’s financial statements, projections, capital expenditures, inventory, debtors and creditors, major customers, cost and margin analysis, evaluation of internal controls, and a thorough review of tax reporting and risks of additional under-reported tax. Quality of Earnings reports are often used in financial due diligence, both on the buy- and sell-side of a mergers and acquisitions transaction.

As we work with you to navigate the financial due diligence process, we will also invest significant time upfront to review the sale/purchase agreement. Our team will work with all parties involved to ensure terms are well defined and agreed to upfront. This will ensure a smooth process for your company both pre-close and post-close.

Financial modeling can take many forms including the use of more advanced models such as discounted cash flow (DCF model) analysis, leveraged-buyout (LBO model), mergers and acquisitions (merger model), and sensitivity analysis. Windes will work together with you to evaluate investment and financing opportunities utilizing cash flow and financial models. The DCF model values a company based on the (NPV) of its projected future cash flow. After certain adjustments are made to a company’s financial statements, the projected cash flows are discounted back to a present date using the company’s weighted average cost of capital (WACC). The merger model analyzes two companies being consolidated together to form a single company. The merger model is used in investment banking and corporate development to evaluate the pro forma accretion or dilution of a merger or acquisition. You will also be able to leverage off our outsource CFO resources to analyze and determine the best investment opportunities for you.

Whether you are thinking about buying or selling a business, or have already signed a letter of intent, Windes can help you understand the importance and purpose of signing a letter of intent (LOI).  A letter of intent is the first formal step in negotiating the sale of your business and can be a very exciting, and in some cases, an anxious and emotional time. Windes understands the complexities of an LOI and can help you navigate items outlined in the LOI, such as deal structure, financing, earn outs, exclusivity, due diligence, EBITDA, and working capital requirements. Typically, an LOI will lay out all of these important aspects of the deal, which both parties will agree to, before moving to the next phase of negotiations. We are here to help you negotiate the terms of the LOI, and walk you through the first phase of your journey.

Working capital is a measure of the short-term liquidity of a company that is calculated by subtracting current liabilities from current assets. It is a critical measure in financial analysis, financial modeling, and managing cash flow. Working capital adjustments are not unusual in mergers and acquisitions transactions and there is often a working capital target. We help you analyze your balance sheet to determine the accuracy and quality of working capital at a normalized level to support the target. We can also provide suggestions to optimize the working capital cycle and efficient use of capital. Decreasing the amount of capital required to fund the operating cycle typically increases the value of the business and can provide access to additional sources of funding. Windes will support your team post-close to ensure networking capital adjustments are appropriate.

A quality of earnings (or QOE) report is used to help establish the financial health of a business by providing a more detailed examination of items not simply by reviewing a target’s financial statements. This includes a focus on the sustainability of revenue and earnings, as well as a forward-looking performance of the business at a detailed level. It also includes evaluating accounting policies and practices, compliance with GAAP, customer churn and relationships, unusual and non-recurring items, normalization and other adjustments, supplier relationships, internal controls and business processes. A sell-side QOE report can uncover potential issues that could cause a sale to be delayed or reduced, and provide you with remedial action to take to increase the sale price and speed-up the buy-side due diligence process. A buy-side QOE report provides an analysis of the recurring nature and quality of the target’s revenue, operations, cash flows and the underlying assets and debts of a business. Our Windes team will collaborate with the target’s key management and its due diligence team to identify favorable adjustments to EBITDA resulting in greater value to the buyer. Through the QOE process, the quality of a target’s accounting records will be scrutinized by both buy- and sell-side due diligence teams. Whether you are buying or selling a business, Windes can help prepare your team to ensure your accounting records are complete and accurate.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a metric used to evaluate a company’s operating performance and is frequently used in financial modeling as a starting point for calculating un-levered free cash flow. EBITDA focuses on the operating decisions of a business because it looks at its profitability from its core operations without the impact of the capital structure, leverage, and non-cash items such as depreciation. It can be used to showcase a company’s financial performance without presenting its capital structure.

It is not a recognized metric within US GAAP. Certain investors disregard EBITDA since it does not include items such as depreciation that can be very significant for a company requiring a high level of continuing investment in capital equipment. EBITDA is sometimes used to compare similar companies by using a company’s enterprise value as a percentage of EBITDA in order to determine if the company is over-valued or under-valued. An EBITDA analysis is typically performed as part of a QOE engagement.

Preparing for a liquidity event, or evaluating target options can be a long and intense process. Once you have determined your next course of action, many times items on the due diligence list will pry open questions from your advisory team that you were not expecting. Windes and your advisory team will evaluate the cost and benefit of reorganizing your business pre-close. Whether you have a signed letter of intent or are preparing for sale, we can help you determine the benefits of a reorganization of your business structure. We will work together with your advisory team to identify legal implications of the transaction as well as determine the most tax-efficient entity structure. We are experienced in evaluating asset sales versus stock sales, qualified small business stock, and state tax implications, including residency issues for individual business owners.

Windes has extensive experience in structure planning with respect to corporations, S elections, partnerships and limited liability companies (LLC’s). We can help with setting up a new business, evaluating target acquisitions for growth, or preparing for a liquidity event. Our team will invest the time with you up front to understand your long-term goals and evaluate the proper structure for your business.

A purchase price allocation (PPA) has important implications for financial reporting and tax purposes. Many times, because of the tax implications, buyers and sellers have different motives in determining the purchase price allocation. Our team will guide you through understanding the financial and tax implications of the purchase price allocation, provide analysis of the PPA, resulting in maximized financial reporting outcomes among available GAAP options and increased tax benefits for the company. We will work with you to ensure the PPA is accurate and intangibles are properly identified. We will help you navigate negotiations upfront with the buyer/seller setting you up for a successful and smooth transition post-close. Whether on the buy or sell side, our focus will be towards maximizing potential return on the sale or your new investment through the tax attributes.

Our assurance and advisory team can work with you to update the Quality of Earnings reports for additional periods as well as assist with networking capital and purchase price adjustments. On the buy-side, we can also help with integration, employee benefit programs, and accounting needs that arise post-close including financial statement consolidation, target accounting assistance, and balance sheet presentation. Our tax team can assist with earnout calculations and tax filings, deadlines, and payments. We will work with the buyers and sellers throughout the due diligence process to avoid any conflicts. In addition, our team is also able to assist with post-close disputes that may arise.