The Path Forward for Private Companies

Private company finance leaders discuss recent trends in the M&A market, initial public offerings, and private equity transactions.

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According to a recent Deloitte study, 53 percent of private companies think that they will be acquiring another business within the next 12 months. A contributing factor to this high level of acquisitions is economic uncertainty. Private companies often acquire other businesses to grow their customer base in an attempt to bolster ongoing revenues to increase their ability to operate in a changing economy. Increasing globalization allows companies look to international acquisitions to access international customer bases and, hopefully, limit their exposure to economic uncertainty.

According to a panel of private company and M&A experts at FEI’s Accounting and Business Change for Finance Leaders Conference, it is also a great time for private companies that are interested in selling their business. Currently, there is $2 trillion in private equity capital waiting to be spent in acquisitions within the next year.

The panelists offered advice for those companies that are looking to sell and take advantage of the enormous amount of private equity capital. One of the largest hinderances of acquisitions is data integrity on the side of the private company. For example, uncovering unreliable or false data once an acquisition process has started can lower a company’s value or even cause a buyer to remove themselves from a deal. To address this issue, the panelists recommended that private companies implement finance and accounting close processes at the end of every year and quarter. Strong controls around the close process will not only help a company understand their own goals and objectives but will mitigate many of the data concerns that can derail an acquisition.

The panel also discussed the importance of having a reputable audit firm if the company is hoping to go public or seek a private equity buyer. While it may not be as important in smaller transactions, when it comes to large public company transactions, a Big 4 audit will go a long way to legitimize the private company and its value.

If companies prepare carefully, well in advance of a transaction, and engage the correct partners, there will be many transaction opportunities available to successful private companies.