Strategic buyers
an operating company acquiring a competitor, a supplier, or a book of business.
01What it covers
What M&A due diligence consulting covers
M&A due diligence consulting is the independent financial and tax analysis of a business that is being bought or sold. It tests whether the earnings a buyer is paying a multiple of are real and repeatable, and it settles the tax structure before the terms are fixed.
The core deliverable of financial due diligence services is a quality of earnings report. It rebuilds reported profit into normalized EBITDA, checks that revenue is what it appears to be, and sets a working capital target that will hold up in the purchase agreement. The engagement also includes tax diligence, exposure review, and the structuring work.
A quality of earnings report is an advisory engagement, not an audit. We do not issue an opinion on the financial statements, and a QoE does not replace an audit where a lender or an investor requires one. That work is scoped separately under audit and attestation.
We also do not:
- act as a broker
- negotiate the price on your behalf
- provide legal due diligence
Those are the banker’s job and the attorney’s job, and we work alongside both.
12+ years
serving New York City
150,000+
returns filed
50 states
covered
5 star
Google, Yelp, Thumbtack
Open
evenings and weekends
02Who we work with
Who we work with
Deal work splits by who is buying and why.
Private equity and independent sponsors
platform and add-on deals, where the rollover and the structure matter as much as the price.
Self-funded searchers and ETA buyers
one deal, personal money, an SBA lender who wants the numbers verified, and often the first time hiring a business acquisition consultant.
Founders preparing to sell
sell side diligence run twelve to eighteen months out, while there is still time to fix what it finds.
Family businesses in succession
a transfer between generations that still needs a defensible value and a structure.
Companies carving out a division
standalone financials for a business unit that has never had its own.
03Buy side vs sell side
How buy side and sell side due diligence differ
Same analysis, opposite purpose, and the timing is what separates them.
Found by your own advisor
A revenue recognition problem found by your own advisor is a housekeeping task.
Found by the buyer's advisor
The same problem found by the buyer’s advisor is a price reduction.
04Quality of earnings
What a quality of earnings report covers
The report a buyer’s lender and investment committee will actually read.
Normalized EBITDA
owner compensation, one-off items, related party charges and non-recurring costs stripped out, each adjustment evidenced rather than asserted.
Revenue quality
whether income is recurring or one-time, how it is recognized, and whether the trend survives a closer look.
Working capital
a normalized target and the seasonality behind it, which is the number that decides the post-closing adjustment.
Proof of cash
reported revenue and earnings tied back to bank activity.
Customer and supplier concentration
where the revenue actually comes from, and what happens if one account leaves.
Debt and debt-like items
deferred revenue, accrued bonuses, unfunded liabilities and capital leases, which reduce the price on a cash free debt free basis.
Tax exposure
unfiled returns, state nexus, worker classification and sales tax, the four that most often turn into an indemnity.
05Tax structuring
The tax structuring decisions that set what you keep
M&A tax advisory is where a CPA firm changes the outcome rather than reporting on it.
Asset sale vs stock sale
the buyer usually wants assets for the basis step-up and to leave history behind. The seller usually wants stock for a single layer of tax. The gap between those two positions is negotiable and it is worth modeling before it is argued.
Section 338(h)(10)
a joint election treating a qualifying 80 percent stock purchase as an asset purchase. Needs a corporate buyer and an S corporation or eligible corporate subsidiary target, with every S corporation shareholder consenting, including nonsellers. Retained equity generally shares in the deemed asset sale tax.
Section 336(e)
similar deemed asset sale treatment, elected without the buyer. It runs off a qualified disposition, not a purchase, so distributions, multiple buyers and noncorporate buyers can qualify, subject to the 80 percent and unrelated party rules.
F reorganization
a pre-sale restructuring under section 368(a)(1)(F), a mere change of form that is tax free and creates no step-up by itself. It puts the operating company under a holding company as a disregarded subsidiary, so the sale that follows is a purchase of LLC interests. That sale can create a partial step-up while part of the seller’s equity continues tax deferred.
Installment treatment
spreading gain across the years the money actually arrives, under section 453. It does not cover everything, and depreciation recapture is recognized up front regardless.
Purchase price allocation
each side files Form 8594, allocating the price across seven asset classes under section 1060. That allocation sets the buyer’s basis and how much of the seller’s gain is ordinary rather than capital.
State and city
New York residency, apportionment, and how a New York City seller is treated, which is regularly the difference between two structures that look identical federally.
06What diligence uncovers
Common problems diligence uncovers
- The seller has never had audited or reviewed financials. The books are on a tax basis, the buyer wants accrual, and the gap has to be bridged before anyone can agree a multiple.
- EBITDA is being quoted with adjustments nobody has evidenced. Add-backs that cannot be supported get removed by the buyer’s advisor, and the price moves with them.
- The working capital peg was agreed before anyone modeled seasonality. This is the most common source of a post-closing dispute and it is entirely avoidable.
- The S election has a history nobody has checked. An ineligible shareholder or an inadvertent second class of stock can invalidate the election, and with it a 338(h)(10).
- A rollover was assumed to be tax free without checking the structure. In an S corporation 338(h)(10), even retained equity generally shares in the deemed asset sale tax. Sellers find this out late and it changes the structure they should have chosen.
- State exposure surfaces in diligence. Unregistered nexus, uncollected sales tax, or contractors who should have been employees, each of which becomes an escrow or an indemnity.
07Engagement
How the engagement works
M&A due diligence consulting runs against short deal timelines, and the process is built around that.
Free consultation
What the deal is, which side you are on, the timeline, and what has already been agreed.Scope and fixed fee
Agreed in writing before work starts, sized to the deal rather than billed hourly.Information request and access
A single request list, and a data room walkthrough with your team or the target’s.Fieldwork and interim findings
Anything that would change the price or the agreement goes to you as we find it, not at the end.Report and debrief
The written report, then a call with you and, where you want it, with your lender or your attorney.
08Cost
What M&A due diligence consulting costs
Priced per engagement, not by the hour. The main factors:
Deal size and how many entities are involved.
Whether the target has audited, reviewed, or tax basis financials only.
How many years and how many locations are in scope.
Whether tax diligence and structuring are included or the engagement is QoE only.
How compressed the timeline is, since exclusivity windows drive the staffing.
These are the factors, not a quote. Every engagement is scoped and quoted at a fixed fee before work starts.
From the record
What our clients say
“We had over a hundred clients this last tax season that were in the wrong business structure. And on average, they overpaid anywhere between a few thousand to even tens of thousands of dollars in tax just because they did not have the right business structure for themselves.”
George Dimov, CPA
“We engaged George Dimov for an inception audit on our tech startup in preparation for equity crowdfunding. George and his team were excellent at communications and extremely efficient. They committed to a 10 day process and completed the project in less than half the time.”
David Levine
Google review
10Related services
Where deal work touches the rest of the practice
Talk to an M&A CPA
Talk to an M&A CPA
Tell us which side of the deal you are on, roughly what size it is, and where it stands. We will tell you what the engagement should cover and quote a fixed fee.