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In today's episode of the M&A Source Podcast, we discuss the myriad benefits that M&A Source offers to its members with Russell Cohen, an M&A advisor and board member for M&A Source. Russel is also the chairman for the membership benefits committee.

Russell and David cover a wide range of topics, from exclusive discounts on essential services like insurance and data room solutions to access to valuable tools that are crucial for any successful M&A advisor. Russell shares his personal experiences and success stories, highlighting how these benefits have positively impacted his professional journey.

We also touch on the importance of the M and A Source community in fostering connections and sharing knowledge within the M&A world.

Whether you're an experienced advisor or just starting, this episode is a treasure trove of information on how being a part of M&A Source can elevate your practice in the competitive world of mergers and acquisitions.

Resources Mentioned in the Show:

• Membership Benefits: https://masource.org/membership/benefits/
• Vertical IQ: https://verticaliq.com/ (regularly $100 / mo or $125 per report - Free to members)
• Private Equity Info: https://privateequityinfo.com/
• VaultRooms (data rooms): https://vaultrooms.com/ (free with membership)
• DealRelations (CRM): https://dealrelations.com/ (member discount)
• Digital Wow (Web, Social Media, etc): https://www.thedigitalwow.com/masource
• ValueCraftz: http://www.valuecraftz.com/ (member discount)
• ClientsIO (email lead generation): https://clientsio.com/ (two months free)
• Sourcescrub (private company research): https://www.sourcescrub.com/ (50% off)

Welcome to our latest episode of the M&A Source Podcast. In this episode, we dive deep into the world of Purchase Agreements with our esteemed guest, Matt Bowles, an attorney at Hogan Lovells. Here's what you'll discover in this insightful discussion:

1. Introduction to Purchase Agreements: We start by exploring why purchase agreements are more than just documents. They are crucial tools in M&A transactions, impacting everything from payment to maintaining tranquility in post-deal activities.
2. Expert Insight: Matt Bowles brings his extensive experience with purchase agreements to the table, offering in-depth knowledge for both beginners and veterans in the M&A space.
3. Anatomy of a Purchase Agreement: Delve into the structure of purchase agreements. We discuss key components such as economic terms, representations, warranties, covenants, and closing conditions.
4. Real-World Applications: Listen to real-world scenarios from Matt's experience, demonstrating the practical application and importance of purchase agreements in various M&A situations.
5. Role of Intermediaries and Attorneys: Understand the crucial roles that intermediaries and attorneys play in the M&A process, particularly in relation to purchase agreements.
6. M&A Stories: Matt shares stories from his career, illustrating both successful and challenging M&A deals, and how purchase agreements played a role in these.
7. Educational Focus: Whether you're new to M&A or a seasoned professional, this episode provides valuable insights into the complex world of purchase agreements.
8. Final Takeaways: We wrap up with key learnings and advice for M&A professionals, emphasizing the importance of understanding and effectively utilizing purchase agreements.

Join us in this enlightening conversation and enhance your understanding of the critical role of purchase agreements in M&A transactions. Whether you're a business owner, intermediary, or legal professional, this episode offers valuable insights for all.

Additional Resources:

• Matt Bowles' LinkedIn Profile
• Hogan Lovells Website
• M&A Source Website for Further Learning and Networking Opportunities

Connect with Us:

• Visit our Website: https://masource.org
• Follow us on LinkedIn/Twitter/Facebook
• Subscribe to our podcast for more insightful episodes

Don't forget to leave us a review if you found this episode valuable!

In this episode of the M&A Source Podcast, host Dave Dejewski is joined by Ryan Hurst, an expert in financial consulting, to discuss the complexities and significance of working capital in mergers and acquisitions.

Key Highlights:

Ryan Hurst's Background: Ryan shares his journey from growing up in a family-owned business to his current role in financial consulting, focusing on helping business owners broaden their perspectives on their companies' potential.

Understanding Working Capital: The episode delves into the multifaceted nature of working capital in M&A transactions. Ryan explains the varying interpretations across different sectors like accounting, valuation, and transaction advisory.

Real-World Scenarios: Ryan provides three compelling case studies, each highlighting different aspects and challenges of working capital in M&A:

• A Complex Transaction: A $60-70 million deal with inventory and project completion issues.
• A Typical Scenario: A $30-40 million consumer products deal illustrating common working capital challenges.
•   An Ideal Transaction: A smooth $50-60 million construction-oriented company sale, demonstrating the benefits of thorough preparation and clear communication.

Advice for M&A Intermediaries: The importance of early preparation, understanding working capital, building trust, and staying informed about industry trends is emphasized.

Connecting with Ryan Hurst: Listeners interested in Ryan’s expertise can reach him through RKL’s website, LinkedIn, or his email. See his bio and contact info here.

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*This podcast is brought to you by M&A Source, a nonprofit organization dedicated to the professional development of mergers and acquisitions intermediaries. For more information, visit [M&A Source](www.masource.org).*

Scott Mashuda, a founding Partner of River’s Edge Alliance Group and M&A Source’s Chairman-elect, discusses his background and what he’s excited about for M&A Source in 2023.

Rich Jones (Zabel Companies) and Bob McCormack (Murphy McCormack Capital Advisors) Discuss Building Trust between Entrepreneurs and Equity Partners

Lamar Stanley of Lead Capital Partners chats with Joel Redmond and Kalimah White of Key Private Bank about techniques that they use in their business advisory practice to help business owners reduce tax exposure in transactions.

Lamar Stanley of Lead Capital Partners chats with John Wahl of Live Oak Bank about what makes Live Oak different and how they structure lower middle market deals. In the interview they discuss the history of Live Oak, and John’s work in SBA lending, combination financing, and many other structures.

Meet the Chairman of M&A Source 2022, Jeff Swiggett

John Dalton talks about the differences between running a business to own it vs running a business to sell.

Sara Burden, the President and Owner of Walden Businesses, a Atlanta based investment bank, discusses her background and the course that she is teaching at M&A Source\'s Fall Conference: The Subtle Art of Educating a Seller

Rick Marchese, the founder of Lares Loreno Private Capital, a corporate finance firm based in Singapore, discusses the course that he taught at M&A Source\'s virtual Fall Conference: Sell-side Modeling

Rich Mowrey, an author and President of Management Services & Development, a firm that provides private ownership transition advisory services to closely-held businesses discusses the course that he teaches.

Bill Loftis, Managing Director and co-founder of Blue River Financial Group, a middle-market merger and acquisition advisory firm based in Detroit, MI, discusses the course that he taught at M&A Source

Jim Afinowich, a Partner and Designated Broker at IBG Fox & Fin, a multi-state business sales and acquisitions firm, discusses the course he taught at M&A Source\'s 2019 Fall Conference: Managing an M&A Auction in the Lower Middle Market

Mont Walker talks with Lamar Stanley about corporate tax returns and hidden key points for M&A Advisory firms.

Host Lamar Stanley interviews Alex Mazer on turnaround situations.

Bob Wegbreit, a partner at GF Data, discusses GF Data\'s benchmark reports on private equity-sponsored M&A transactions. In the interview, Bob goes through the data that they have collected.

Interact with the show: https://snip.ly/mas_interact25

In this episode of the M&A Source podcast, Dave Dejewski continues a series on essential tax code provisions for mergers and acquisitions, discussing five additional provisions that can significantly impact tax outcomes for buyers, sellers, and their advisors.

The exchange is a podcast discussing 10 tax code provisions that are relevant for mergers and acquisitions (M&A) transactions. It is divided into two parts, with Part 1 covering the first 5 provisions and Part 2 covering the remaining 5 provisions.

Part 2 covers the following tax code provisions:

1. Section 368 - Tax-Free Reorganizations

This provision allows for tax-deferred treatment of certain corporate reorganizations, such as mergers and acquisitions, to encourage business continuity, growth, and realignment without triggering immediate tax liabilities. It requires continuity of interest and continuity of business enterprise.

2. Section 409A - Deferred Compensation

This provision establishes strict rules for when income can be deferred and when it must be paid, preventing abuse and ensuring fairness in the tax system. It imposes penalties for non-compliance and encourages proper planning and transparency in deferred compensation plans.

3. Section 1031 - Like-Kind Exchanges

This provision allows for the deferral of capital gains taxes when exchanging real properties for similar properties, stimulating growth in real estate-heavy businesses.

4. Section 721 - Contributions to Partnerships

This provision promotes the creation and growth of partnerships by allowing individuals or entities to contribute property to a partnership without triggering immediate tax consequences, facilitating partnership formation and encouraging joint ventures and investments.

5. Section 453 and 453A - Installment Sales

Section 453 allows sellers to report capital gains income over time through the installment sale method, aligning tax payments with the receipt of sale proceeds and providing tax deferral. Section 453A imposes an interest charge on large installment sales over $5 million to limit the tax benefits of deferring large amounts of tax.

Key Takeaways

These final five of ten tax provisions cover a wide range of areas, including tax-free reorganizations, deferred compensation, like-kind exchanges, partnership contributions, and installment sales.

The episode highlights the importance of understanding these provisions and leveraging them to minimize tax liabilities, encourage business continuity, and facilitate growth and realignment. It also emphasizes the need for proper planning, transparency, and compliance to avoid penalties and ensure that the intended tax benefits are realized.

Overall, this episode provides valuable insights into the tax considerations and strategies that should be taken into account when structuring M&A deals, making it a valuable resource for advisors, business owners, and investors involved in such transactions.

LEGAL DISCLAIMER: This resource is intended for educational purposes only and does not constitute legal, financial, or tax advice. The information provided herein should not be relied upon for any specific business or financial decision without first consulting appropriate professional counsel. Readers are encouraged to seek advice from qualified attorneys, accountants, or other professionals to address their unique circumstances. Neither the authors nor the publisher assumes any responsibility for actions taken based on the information provided in this resource.

Interact with the show: https://snip.ly/mas_interact24

The episode discusses 10 key tax code provisions relevant to mergers and acquisitions (M&A) transactions. It is divided into multiple parts, with Part 1 covering the following provisions:

1. Section 338 - Election for Treating Stock Purchases as Asset Purchases

This provision allows buyers to treat a stock purchase as if they are purchasing the underlying assets of the business, enabling them to step up the basis of the acquired assets to their fair market value for tax purposes.

2. Section 1202 - Qualified Small Business Stock Exclusions

This provision allows investors to exclude capital gains taxes on the sale of stock in qualified small businesses, subject to certain eligibility criteria.

3. Section 197 - Amortization of Goodwill and Intangibles

This provision provides uniform rules for the amortization of intangible assets, such as goodwill, franchise rights, patents, and trademarks, over a 15-year period.

4. Section 280G - Golden Parachute Payments

This provision addresses excessive compensation packages (golden parachutes) paid to executives and key employees during a change of control event, such as a merger or acquisition.

5. Section 382 - Limitation on Net Operating Losses

This provision limits the amount of net operating losses that a company can use after an ownership change to prevent companies from acquiring loss corporations solely for tax benefits.

1. "Section 338 allows buyers to treat a stock purchase as if they're purchasing the underlying assets of the business. And that means for tax purposes, the buyer can step up the basis of the acquired assets to their fair market value as opposed to the book value, which can result in greater depreciation, amortization deductions over time."

2. "Section 1202 is a powerful tool for investors and business owners who want to maximize their returns by excluding capital gains taxes on the sale of stock in small businesses."

3. "Section 197 was introduced to basically provide some uniform rules around amortization of intangible assets intangible assets, what are they it's goodwill, it's franchise rights, it's patents, it's trademarks."

4. "Section 280G of the US tax code was created to address this golden parachute concept. Golden parachute are these large compensation packages there's severance payments that are paid to executives and they're paid out to key employees when there's a change of control event so a merger or an acquisition is considered a change of control event."

5. "Section 382, it curbs this practice by limiting the amount of net operating losses that a company can use after the acquisition and that's based on the company's value at the time of the ownership change and this prevents companies from using net operating losses as a tax sheltering tool."

This episode provides a high level overview of several key tax code provisions that can significantly impact the structuring and tax implications of M&A transactions. It highlights the importance of understanding these provisions and working closely with legal and financial advisors to ensure that deals are structured efficiently and in compliance with tax regulations. The detailed explanations, examples, and practical considerations offered in the show are valuable for M&A advisors, business owners, and investors involved in buying or selling businesses.

LEGAL DISCLAIMER: This resource is intended for educational purposes only and does not constitute legal, financial, or tax advice. The information provided herein should not be relied upon for any specific business or financial decision without first consulting appropriate professional counsel. Readers are encouraged to seek advice from qualified attorneys, accountants, or other professionals to address their unique circumstances. Neither the authors nor the publisher assumes any responsibility for actions taken based on the information provided in this resource.

• Visit the Show: https://podcast.masource.org
• Become a member or register for a class or event: https://masource.org

• Introduction to US GAAP and its importance for companies expanding into the US market
• Key differences between US GAAP, UK GAAP, and IFRS
• The process of converting from UK GAAP to US GAAP
• Compliance requirements and auditing considerations for US GAAP
• Preparing for fundraising rounds with US investors
• Challenges and common issues faced during the conversion process
• Strategies for effective knowledge transfer and ongoing US GAAP support

The discussion began with an introduction to US GAAP (Generally Accepted Accounting Principles) and its significance for companies looking to expand into the US market. Katrina Nachi, a cross-border accounting advisor, highlighted that companies often face challenges when entering the US market due to differences in accounting standards and regulations. Understanding and complying with US GAAP is crucial for companies seeking US investors, acquiring US companies, or planning an IPO in the US.

Katrina explained the key differences between US GAAP, UK GAAP, and IFRS (International Financial Reporting Standards). While IFRS and US GAAP are becoming more aligned, there are still nuances, particularly in areas such as revenue recognition, capitalization of costs, and share-based compensation. UK GAAP, on the other hand, has more significant differences from US GAAP, especially in terms of what can be capitalized.

Katrina outlined a three-phase process for converting from UK GAAP to US GAAP:

1. Qualitative assessment: Identifying differences in accounting policies and creating a matrix comparing current policies under UK GAAP with suggested US GAAP policies.

2. Quantitative assessment: Adjusting calculations and schedules to reflect US GAAP requirements and quantifying conversion adjustments.

3. Financial statement preparation: Preparing financial statements and footnote disclosures under US GAAP, incorporating conversion adjustments.

The discussion covered the additional compliance requirements and auditing considerations when adopting US GAAP. Companies may need to undergo a US GAAP audit, which typically involves a lower materiality threshold and more thorough walkthroughs and control testing. The timing of audits and potential overlap with local audits were also discussed.

Katrina emphasized the importance of being proactive in preparing for fundraising rounds with US investors. Presenting a qualitative assessment of US GAAP differences and potential conversion adjustments can demonstrate an understanding of the requirements and facilitate due diligence processes. This can potentially broaden the range of investors available to the company.

Several challenges and common issues were discussed, including:

- Lack of documentation and messy calculations under current GAAP, making the conversion process more difficult.

- Determining the appropriate retrospective period for conversion, which may depend on the intended use of the financial statements.

- Ensuring knowledge transfer and ongoing support for the local finance team to maintain US GAAP reporting after the conversion.

Katrina highlighted the importance of effective knowledge transfer and ongoing support for the local finance team. She suggested exploring options such as working with a fractional Chief Accounting Officer or leveraging external advisors for specific transactions or new accounting standards. This approach can provide access to US GAAP expertise while enabling the local team to maintain day-to-day reporting.

For companies considering US expansion or fundraising with US investors:

• Document current accounting policies and procedures under local GAAP. Responsible: Finance Team, Ongoing
• Assess the qualitative differences between local GAAP and US GAAP. Responsible: Katrina Nachi or other US GAAP advisor, Prior to fundraising/expansion
• Engage with auditors to align on the conversion process and required documentation. Responsible: Finance Team, Prior to conversion

For companies undergoing a US GAAP conversion:

• Develop a detailed conversion plan, including quantitative assessments and financial statement preparation. Responsible: Katrina Nachi or other US GAAP advisor, Prior to conversion
• Ensure knowledge transfer and training for the local finance team on US GAAP reporting. Responsible: Katrina Nachi or other US GAAP advisor, During and after conversion
• Explore options for ongoing US GAAP support, such as a fractional Chief Accounting Officer. Responsible: Finance Team, After conversion

For companies operating in regulated industries (e.g., fintech):

• Consult with legal advisors to understand specific US GAAP requirements and regulations. Responsible: Finance Team and Legal Counsel, Prior to US expansion
• Assess the need for US GAAP reporting from day one of US operations. Responsible: Finance Team and Katrina Nachi or other US GAAP advisor, Prior to US expansion

Problem: Lack of understanding and documentation of current accounting policies under local GAAP, making the conversion process more challenging.

Solution: Proactively document and maintain clear accounting policies and procedures under local GAAP. This will facilitate the conversion process and enable effective knowledge transfer to the US GAAP advisor.

Problem: Limited budgets for engaging large accounting firms to handle the US GAAP conversion, leading to potential knowledge gaps within the local finance team.

Solution: Explore alternative engagement models with US GAAP advisors, such as working collaboratively on specific phases of the conversion process or leveraging fractional Chief Accounting Officer services. This can provide access to expertise while enabling knowledge transfer and cost savings.

Problem: Difficulty finding local finance professionals with strong US GAAP expertise, particularly in Europe.

Solution: Maintain a strong local finance team with expertise in local GAAP and leverage external US GAAP advisors for specific transactions, new accounting standards, or ongoing support. This hybrid approach combines local knowledge with specialized US GAAP expertise.

Problem: Potential overlap or conflicts between local audits and US GAAP audits, leading to inefficiencies and duplication of efforts.

Solution: Engage with auditors early to align timelines and coordinate the local and US GAAP audit processes. Explore opportunities for auditors to leverage work already performed during the local audit to streamline the US GAAP audit process.

• Find Katrina’s US Accounting & Reporting Guide

​built for European finance teams: https://www.theinternationalaccountant.com/

Interact with the show: https://snip.ly/mas_interact21

Share your origin story

In this episode of the M&A Source podcast, Dave Dejewski dives deep into essential business performance metrics that significantly impact business valuation and success. Dave discusses key metrics such as EBITDA, employee activity ratios, and cash flow ratios, providing insights into their importance and how to leverage them for better client guidance. He shares practical examples from client experiences and offers a comprehensive worksheet of various metrics for M&A professionals.

The episode discusses the importance of understanding and analyzing key business performance metrics in the M&A process, emphasizing on metrics like sales per employee, employee turnover rate, and operating cash flow, and offers a comprehensive worksheet with various valuation ratios and metrics to better guide clients and position oneself as an expert.

David emphasizes the value of presenting oneself as an expert by having in-depth knowledge of these metrics and being able to have meaningful conversations with sellers and buyers. By analyzing these metrics, M&A advisors can drive improvements, increase the value of the businesses they represent, and remove friction from the transaction process.

The offer of a worksheet with 56 different valuation ratios, sector-specific ratios, profitability ratios, operational metrics, and more is a valuable resource for M&A professionals to incorporate into their practice and better serve our clients.

Visit us at https://podcast.masource.org

In this episode, Shelia Darby, Managing Director of Bizworth, discusses the importance of accurate business valuations in M&A transactions, the different valuation methodologies, challenges in valuations, best practices and ethical considerations, and the value of partnering with valuation professionals.

• Aswath Damodaran resources on valuation and corporate finance: https://pages.stern.nyu.edu/~adamodar/
• Business Reference Guide: https://businessreferenceguide.com/
• Vertical IQ: https://verticaliq.com/
• Deal Stats: https://www.bvresources.com/products/dealstats
• Biz Comps: https://bizcomps.com/
• ValueSource: https://www.valusource.com/
• Peer Comps: https://peercomps.gvalue.com/
• Pitchbook: https://pitchbook.com/
• Brokerage Simplification Act Info: https://masource.org/resources/legal-updates/

This episode features an interview with Shelia Darby, Managing Director of Bizworth, who has over 25 years of experience in business valuations. The discussion covers the following key sections:

Introduction and Background

Shelia shares her background, starting in the corporate world at companies like Enron and transitioning to the middle market and Main Street valuations. She discusses her certifications and the importance of continuous learning.

Importance of Accurate Business Valuations

Shelia explains why accurate business valuations are critical for both buyers and sellers in M&A transactions, helping to close more deals and avoid leaving money on the table.

Valuation Methodologies

The three main valuation approaches are discussed: asset approach, market approach, and income approach. Shelia dives into the details of each approach, common methods used, and when to apply them.

Special Circumstances and Challenges

Various special circumstances and challenges in business valuations are explored, including non-operating assets, intangible assets, regulatory impacts, distressed businesses, and rapid growth or volatile businesses.

Best Practices and Ethical Considerations

Shelia shares best practices for valuations, emphasizing transparency, honesty, and using reputable sources. She also discusses ethical considerations, drawing from her experience on the Ethics Oversight Board of NACVA.

About Bizworth

Shelia provides information about her company, Bizworth, and the valuation services they offer to support M&A advisors and business brokers.

Throughout the interview, several questions were asked and answered:

Q: How did you get into the business of valuations, and what drew you to it as a career?

A: Shelia started in the corporate world at companies like Enron, working in valuation groups. She transitioned to Main Street and middle market valuations in 2014, finding it more appealing.

Q: Why is an accurate business valuation critical for both the seller and the buyer in the M&A process?

A: Accurate valuations help close more deals, avoid leaving money on the table, and identify gaps early on.

Q: What are the different valuation methodologies, and what should M&A advisors consider when looking at them?

A: The three main approaches are asset, market, and income. Sheila explains each approach, common methods, and when to use them.

Q: What are some common challenges you come across when valuing businesses, particularly in the small and medium enterprise area?

A: Common challenges include non-operating assets, intangible assets, regulatory impacts, distressed businesses, and rapid growth or volatile businesses.

Q: What are your thoughts on best practices and ethical considerations in valuations?

A: Best practices include transparency, honesty, and using reputable sources. Ethical considerations involve operating with integrity, avoiding conflicts of interest, and staying in your lane.

Here are five valuable quotes from the interview:

"If you don't get a proper accurate valuation, you're leaving money on the table. First of all, you're not closing as many deals as you can, right you're not identifying as early on as possible if there's gaps."

• Shelia Darby, on the importance of accurate valuations

"Honesty is the best policy. Transparency is crucial. It doesn't matter if you're an M&A advisor, an attorney supporting an M&A advisor, CPA, or evaluation professional honesty is the best policy transparency.”

• Shelia Darby, on best practices

"Make sure you're not making things up you're not feeling your way through everything it's one thing to have an intuitive gut. We all want to listen to our gut, but back it up with facts."

Shelia Darby, on best practices

"If you're going to spend a lifetime building up your reputation, don't lose it in 5 minutes that's that's the standard there, that you're going to have a long plus, very plus, you know, very you have lots of prosperity in your field if you just abide by those."

• Shelia Darby, on maintaining a good reputation

"It's OK to say you have a valuation professional supporting you. You don't have to be your clients valuation professional and CPA and attorney stay in your lane and be the best conductor to get their business sold."

• Shelia Darby, on the role of an M&A advisor

This interview with Shelia Darby provided valuable insights and lessons on business valuations, including:

• The importance of accurate valuations in closing more deals and avoiding leaving money on the table.
• Understanding the different valuation approaches (asset, market, income) and when to use them.
• Recognizing special circumstances and challenges in valuations, such as non-operating assets, intangible assets, regulatory impacts, distressed businesses, and rapid growth/volatility.
• Best practices for valuations, including transparency, honesty, and using reputable sources.
• Ethical considerations, such as operating with integrity, avoiding conflicts of interest, and staying in your lane as an M&A advisor.
• The value of partnering with valuation professionals and experts when dealing with complex situations.

In summary, this interview highlights the complexity and nuances involved in business valuations, emphasizing the need for M&A advisors to have a solid understanding of valuation principles while also recognizing the importance of collaborating with valuation experts to ensure accurate and defensible valuations.