Looking to acquire a business?
Don't forget the accounting!
Business acquisitions are often significant strategic decisions to improve a business that can also have a material impact on financial statements.
In particular, business acquisitions often involve earn-out payments, post-acquisition payments to selling shareholders, indemnity arrangements and other terms which can all create accounting complexity and/or introduce earnings volatility in the financial statements.
Acquisitions may also involve the need for complex valuations in respect of assets and liabilities being acquired, or where equity or other financial instruments are exchanged.
While accounting should not drive decision making, early consideration of the accounting choices available and possible accounting consequences may identify terms that could be adapted to remove earnings volatility or other complexities. It also supports transparent decision making and up front communications with investors so that there are no surprises after the deal has been completed.