As a child “hide and seek” is a fun game to play with your friends. As a mergers and acquisition advisor, the game has great reward for our clients, which is also fun. “Hide”…hiding profits is at times a strategy for business owners to minimize tax exposure by loading the middle of a company’s profit and loss with expenses including ownership perks and benefits. “Seek”…seeking EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) and extracting the profitability of our clients companies can equate to several “valuation dollars” per every dollar of profit we seek.
Collectively, tax planners and business owners can decide to load ownership expenses onto the company which would theoretically not exists under different ownership. Although this is a tax strategy, it is not a strategy that benefits a company’s valuation. As a merger and acquisition advisory firm we are focused to maximize value. Considering value is typically derived form EBITDA, we need to thoroughly examine the profit and loss statement and seek the profitability of the each company by normalizing the financials. As a result we extract every dollar of profit into our EBITDA caluclation and maximize the overall valuation of our clients company’s.
Brian T. Franco – Managing Partner of Meritage Partners