Kral Ussery LLC, Certified Public Accountants
TX Office: (817) 416-6842
NV Office: (702) 565-2727

Business Valuation and M&A

Tap into KU's tools, advice and experience:

  • Business Valuations
  • Purchase Price Allocations
  • Buyouts and Ownership Transfers
  • Quality of Earnings
  • M&A Due Diligence
  • M&A Post Transaction Integration

Business Valuations

We assist clients from both strategic and compliance perspectives in providing competent and objective valuation services. We perform independent valuations for both private and public companies to assist in areas such as:
  • financial reporting,
  • tax compliance,
  • management planning,
  • dispute and litigation, and
  • investment analysis.
Our valuation reports and analyses are objective, supportable and transparent for the client, advisors, auditors, attorneys and other stakeholders.

With deep and diverse valuation experience and expertise from years of work in large accounting and advisory firms, we are a competent choice for valuation services. Our deep knowledge of valuation techniques and their appropriate application in financial reporting, tax compliance and other matters such as buyouts and ownership transfers make us uniquely qualified to support an array of clients. Our valuation experts keep current on valuation trends, regulatory and compliance changes, and research tools to support our work. Our team has relevant credentials, including ongoing education to ensure that we stay on the cutting edge of valuation services.

KU provides valuation services to business owners and management teams to help them understand and support the value of the company. A business valuation may provide insight to a business owner prior to a potential sale. Further examples of our valuation services are:

  • Buy-side or sell-side advisory
  • Valuation of private equity fund interests in portfolio companies
  • Goodwill impairment testing under FASB ASC 350.

Purchase Price Allocations

Valuations for U.S. financial reporting are governed by standards issued by the Financial Accounting Standards Board (FASB) in the Accounting Standards Codification (ASC). Company auditors follow audit standards that direct their testing of valuation methods, models, inputs and data. We understand these requirements and develop valuations for financial reporting standards such as ASC 805 (purchase price allocations). These valuations are highly complex, and we are often asked by our clients to lead the process to communicate directly with the auditor and their internal valuation specialist to ensure that we resolve any differences of opinion in an efficient manner to finalize the valuation process. Services include:
  • Estimate purchase price consideration and address/value contingent consideration
  • Valuation of intangible assets (customer relationships, trademarks and trade names, non-compete agreements, and other intellectual property)
  • Valuation of tangible assets (real estate, machinery and equipment, and other fixed assets)
  • Valuation of other assets acquired (e.g., inventory) and liabilities assumed (e.g., deferred revenue).

Buyouts and Ownership Transfers

KU also provides valuation services to business owners and management teams of companies to help them understand and support the value of ownership interests in a company. Service areas include:
  • Buyout of ownership interest
  • Gift or transfer of ownership interest to family member or employee
  • Issuance of ownership interests to employees in lieu of cash compensation (Internal Revenue Code section 409A).

Quality of Earnings

Objective information is vital for good M&A decisions, and a quality of earnings report can go a long way in meeting this objective. A quality of earnings report is a due diligence project, but it is not an audit. With an audit, the emphasis is on the balance sheet rather than on the economic earnings power of the going concern. A quality of earnings report focuses on a detailed analysis of a company's revenue and expense components. The primary objective of a quality of earnings project is to assess the sustainability and accuracy of historical earnings, as well as the achievability of future projections.

While a due diligence project should never be confused with an audit, a quality of earnings effort does have the following procedures in common with an audit:

  • When attempting to isolate the completeness of earnings we perform a proof of cash. If the cash cannot be proved, then the buyer cannot be sure of anything.
  • Also, similar to an audit, revenue recognition should be tested to ensure it is in compliance with the company’s policy as well as with general accepted accounting principles.
  • In addition, the beginning and ending balance sheet accounts should be scrutinized to determine if revenues and expenses are in the proper periods, liabilities and reserves are appropriately recorded, and proper disclosures are made such as related party transactions and loss contingencies.
Due diligence adjustments are likely byproducts of the quality of earnings project. These adjustments might include overlooked onetime expenses, accounting errors, effects of unrecorded or under recorded liabilities, or related party transactions not made at ‘arms-length’ terms. The types and numbers of these adjustments provide not only a better understanding of the economic earnings but also some insights into the quality of the company’s information and the strength of the management team.

Another important consideration for these projects is the identification of concentrations and operational risks. This applies not only to customer concentrations, but also industry, product/service, distribution channel, supply chain, etc. These concentrations must be identified and understood to fully access the risks of operating revenue. Other risks to consider include cost structure, price strategy, key-man issues, and dependency on intellectual property.

Call upon us to explore the KU advantage in delivering independent quality of earnings reports.

Mergers and Acquisitions

Some of the most important corporate decisions involve mergers or acquisitions. Despite a high degree of complex risks, decisions are often made resulting in less than desirable results. A company's ability to pounce on opportunities, while aggressively mitigating risks, hinges to a large degree on the quality of information feeding into the decision and the decision-making process. Good information and well-defined decision rights are pillars of M&A success.

Understanding the risks of poor information and decision making is a start, however bringing in the expertise to mitigate these risks through all M&A stages is where the big payoffs reside. We can help on multiple fronts and during various stages, including:

Pre-M&A Decision Stage

  • Identifying the magnitudes of data and information, both internal and external, and potential for use
  • Clarifying the objective of evidence gathering in the decision-making process
  • Mitigating the risk of non-transparency between management, the board, auditors and stakeholders
  • Developing controls to promote strong decision rights and information flows
  • Ensuring a thorough understanding of reasonably possible outcomes
  • Understanding new regulatory requirements

Readiness Stage (Prior to Day 1)

  • Assessing the magnitudes of data and information, both internal and external
  • Aligning people, processes and technology
  • Adjusting the governance structure to ensure accountability
  • Integrating cultures
  • Preparing for a new look of consolidated financial statements, including potentially a new GAAP
  • Understanding what must happen by Day 1 and making certain it happens
  • Clearly identify who is going to do what, how, when, where and why
  • Building controls to best meet objectives in the new environment
Day 1 Operations

This is usually a relatively long list of Day-1 activities, including items such as:
  • Run integrated technologies in a live environment
  • Draw on new credit facility
  • Complete the first cash receipt and deposit
  • Complete first shipment
  • Complete the first customer invoice
  • Complete first goods receipt
  • Take first customer order
  • Pay first bills
  • Deliver upon first customer order
  • Record proper transactions in accounting system

Post Day 1 Operations

  • Monitoring and communicating operating performance
  • Making necessary refinements to policies and procedures to help ensure long-term success
  • Ensuring that initial weekly, monthly, quarterly and annual reporting is effective for both internal and external purposes
  • Conducting a follow-up risk assessment in the spirit of maximizing long-term shareholder value
  • Updating strategic plan
Our experienced team can assist in conducting a robust due diligence assessment designed to ferret out potential risks and valuation considerations, assess their magnitude and the probability of the risks' occurrence, consider whether mitigation is possible and respond accordingly.

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