Mergers & Acquisitions: Risk Considerations in Transactions

January 3, 2019 – Growth and efficiency are at the top of the agenda for all companies regardless of their status as for-profit or not-for-profit. Merger and acquisition activity is expected to rise as companies seek to achieve growth and efficiency opportunities. Executives are tasked with evaluating all aspects of a potential transaction in determining if it is in the company’s best interest. One key component of the decision making process is to undertake a risk assessment process of the target.

A well designed and executed risk assessment process evaluates the following considerations (as applicable):

  • Quality of Earnings – What do normalized historical earnings look like and what are potential synergies?
  • Business Valuation – What is the value of the business being acquired and how do certain earnings or collateral adjustments impact its value?
  • Forecasts – Are they reasonable and what are the key assumptions?
  • Tax Compliance and Planning – What opportunities or exposures exist?
  • IT Systems – Will the existing system remain and what risks and/or opportunities does it pose?
  • Financial internal controls – What exposures exist with the current control structure?
  • Pre-financing collateral field exam – What is the quality of the target’s collateral and will it support collateralized borrowings?
  • Retirement benefits – What compliance exposures exist?

Every transaction, whether an asset or stock sale or a merger of a not-for-profit, is different and the risk assessment of that transaction should be tailored accordingly.

This post is an excerpt from the Dopkins Risk Advisory Services newsletter.  To read the complete publication, please click here.

For more information, please contact Andrew Reading, CPA at areading@dopkins.com.

About the Author

Andrew J. Reading CPA

Andy is a seasoned financial services professional with experience auditing financial systems, programs and processes for clients from a diverse range of industries. He devotes a significant portion of his career to building client relationships that are rooted in an understanding of their operations and goals through all stages of their business life cycle. As a leader of the Firm’s Risk Advisory Services Team, he oversees the design, execution, and implementation of client risk assessment and audit plans.