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3-Part Series – How Accountants Steer M&A—A Lawyer's Insight
When a deal begins to take shape, lawyers and accountants are often among the first calls, and for good reasons. Each brings a critical lens to the transaction. In my experience, involving accountants early and often can surface insights that shape structure, uncover risk, and strengthen outcomes.
Accountants don't just run the numbers. They help shape the deal itself. From structuring to diligence, their insights influence everything from tax efficiency to risk allocation. And when they're looped in from the start, the entire transaction benefits.
Structuring Starts with Substance
At the LOI stage, legal teams are focused on deal form: Asset vs. stock, closing mechanics, representations, and indemnity structure. But accountants are already thinking about how those choices affect financial reporting, tax exposure, and post-close integration.
Here's how early accounting input can reshape deal structure in practice: Imagine a scenario where a buyer is leaning toward an asset purchase to avoid successor liability. On paper, it seems clean. But during early structuring discussions, the accountant raises a critical point: the asset deal could trigger sales tax exposure across multiple states, which is a cost that hadn't been modeled. With that insight, the team could reconsider and pivot to a stock transaction with targeted indemnities. The result? A more efficient structure and a smoother compliance path.
EBITDA Isn't Always What It Seems
Earnouts and valuation metrics often hinge on EBITDA. But what counts as "adjusted" EBITDA can vary wildly. Accountants help define it and defend it.
Consider a situation where a seller is negotiating an earnout based on adjusted EBITDA. During early review of the buyer's model, the seller's accountant notices that a recurring software subscription expense has been excluded from the EBITDA calculation. That one adjustment could significantly reduce the seller's earnout, potentially by 30% or more. By catching it early, the team could clarify the definition of EBITDA in the purchase agreement, ensuring that both sides are aligned, and the seller's upside is preserved.
Diligence Is a Team Sport
When diligence begins, accountants are the ones combing through revenue recognition policies, AR aging schedules, and contingent liabilities. Their findings shape the legal team's approach to representations, warranties, and indemnities.
Picture a deal where the buyer is reviewing the target's financials and notices a lease classified as operating. During diligence, the accountant takes a closer look and realizes it should have been capitalized under the applicable accounting standards. That reclassification significantly alters the company's debt profile, enough to affect the purchase price and potentially trigger issues with the buyer's financing covenants. With that insight, the deal team could revisit the numbers, adjust the valuation, and avoid inheriting a hidden liability.
The Takeaway
Accountants aren't just supporting the deal; they're shaping it from the ground up. Their early involvement leads to smarter structures, clearer definitions, and fewer surprises down the road.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
