Mergers and acquisitions are among the major methods that allow businesses to push forward with their growth, operations, mission, and goals. For the most part, the two processes are quite similar – they involve two, or more, pre-existing business entities combining into a single surviving company. In 2021, the mergers and acquisitions market just in the U.S. reached a record value of $2.9 trillion in transactions. In fact, the country accounted for nearly 60% of the global deals in that year.
Naturally, both processes are extremely complicated, time-consuming, and require a lot of support from experts in the accounting and legal fields. If the involved entities do not have the internal departments to handle the merger’s workload, it is best to find a specialized outside firm. Multiple factors should guide the selection of an external counsel.
The accounting firm must be sufficiently proficient in the process and should operate within the specific jurisdiction. For example, U.K. entities participating in a merger might want to look for accountants London to support the process. Finding accountants that you can trust to deliver outstanding results is paramount as mergers involve rigorous examination of both companies’ financial statements, accounts, activities, and more.
Accounting’s Role In a Merger
The merger process begins with identifying the right targets and initiating negotiations. What follows are multiple rounds of due diligence, analysis of financial reports, past business performance, formulating projections, signing preliminary agreements, doing even more due diligence, and moving towards finalizing the deal. Countless moving parts must all be synchronized in order to deliver the required results.
Obtaining regulatory approval may also be necessary, especially in cases where the merger parties are large businesses with significant market shares in the specific sector. Mergers in the U.S. fall under the dual jurisdiction of the federal government and the laws of the specific state in which the target company is incorporated.
More specifically, the SEC (Securities and Exchange Commission) controls the sales and transfer of securities, while the DOJ (Department of Justice) and the FTC (Federal Trade Commission) handle antitrust and competition matters. Additional agencies may also get involved if the entities of the merger operate in certain regulated industries. To assure that they are compliant will all the necessary requirements, both businesses will need qualified advice from accounting and legal professionals.
For a merger to be successfully finalized, both involved parties must compile massive amounts of financial data and provide it to each other. In turn, each party must diligently examine the given reports, data, balance sheets, projection reports, etc., and ensure that all of the numbers are accurate, relevant, and meet their expectations. If the merger involves stock consideration, proxy statements will need to be filed and cleared by the SEC. The company issuing the shares must also register them with the Commission via registration statements.
The accounting specialists must go over both companies’ accounts, sales figures, intellectual property, material contracts, existing commitments, and customers. At the same time, they must confirm that all pending or current legal proceedings involving the chosen entity have been properly disclosed in the provided documentation. The same also applies to any tax infringements, regulatory issues, environmental policies, and current or potential employee and H.R. problems.
Before the deal can be closed, it may also need to pass regulatory approval. The FTC enforces rules pertaining to specific information that cannot be disclosed, particularly regarding certain pricing information and strategic plans. Simultaneously, the FTC might request additional information to be provided during the review process, including internal documents related to the deal or a detailed copy of all the communication that has taken place between the two entities of the merger.
Even when the merger has been officially announced to the public and subsequently finalized, the expertise provided by the accountants is still necessary. It is more than likely that the merger agreement contains agreed-upon provisions that will require the accountants from both companies to remain active participants for quite a while. One common example is determining the necessary cash settlement of the difference between a specified net working capital value and the final net working capital between the two companies on the closing date.
The post-closing responsibilities may also include facilitating the integration of the accounting systems of the existing entities into the company that will be formed after the merger. This could require migrating all of the current data and functions to new systems. Accounting is also essential in assisting with the implementation of the new internal controls and any governance processes of the surviving entity.