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Happy Friday and welcome to another edition of Axial Radar!
One of the primary objectives of the M&A due diligence process is establishing fair market value for the asset being traded. A natural point of contention between buyer and seller, multiple strategies can be used to help bridge the gap between a seller’s exit expectations and the business’ actual operating potential in any given year. One of those strategies is the somewhat infamous EBITDA adjustment process.
EBITDA adjustments are intended to reveal the true performance of a business, sans any unexpected, one-time, force majeure-type events… like a global pandemic. The tricky part of EBITDA adjustments, however, is toeing the line between defensible and unreasonable. Adding back too much can very quickly cause a deal to go off the rails while calling the seller’s credibility into question. Include too little, on the other hand, and the seller will likely leave chips on the table when all is said and done. In this week’s featured Industry Trends article, we explore trends in EBITDA adjustments and how sellers and their M&A advisors are thinking about the process in light of the pandemic and its impact on operating performance over the last 18 months.
Our featured buy-side members this week include a strategic PE firm with a buy and build approach, a 30 year old corporation in the contracting space, and a Nashville-based family office. On the sell-side we’ll introduce you to a leading M&A brokerage firm, and an M&A advisory firm led by a veteran finance professional with over 30 years experience.
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