Articles & Insights
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Corporate Merger and Acquisition activity has slumped to the lowest levels in a decade as buyers and sellers find it difficult to agree on acquisition pricing. That said, motivated buyers and sellers are finding workarounds to fill the gap between seller valuations and what buyers are willing to pay. Specifically, buyers and sellers are finding ways to reduce transactional risk, and get deals done, by including Earnouts and Equity Rollovers into transaction terms and conditions.
The traditional Income Statement Approach classifies costs according to the reason costs were incurred and yields a Profit Calculation for your business as a whole. While this is a good measure for understanding the profitability of your entire business, it is not an effective method for measuring the contribution that individual products make to your company’s bottom line. For this, you need to utilize a Contribution Margin Approach.
A Fairness Opinion can provide important information in a wide variety of financial transactions such as mergers, acquisitions and business privatizations, as well as hostile takeovers and distressed sales. Very succinctly, a Fairness Opinion can be thought of as a second opinion because it addresses the fairness of a proposed equity transaction from a financial perspective, as produced by an independent financial advisor who objectively examines the price, terms and consideration to be received in a given transaction.
Over my many years as a corporate CFO and, more recently, as an outsourced Financial Planning and Analysis (FP&A) professional, I have been puzzled over why so many hardworking, smart, FP&A teams engage in static linear thinking as it pertains to their financial planning processes. I have come to believe that it is because we are trained to be comfortable with simple budget models that have static, consistent, palatable rates of growth over time. We are comfortable budgeting for things that have already occurred and adjusting sales revenue, along with associated production costs, to achieve our targeted growth after the fact. Rarely are other factors considered.
