Dealmaking Outlook for 2025

Michael Braverman: 

Hey, Elana, thank you. It's wonderful to be at EisnerAmper, and I'm looking forward to telling you a little bit about what's going on in our TAS practice and in the broader deal market. 

Elana Margulies-Snyderman: 

Absolutely, Mike. So, to kick off the conversation, I would love to hear about your background and your goals for EisnerAmper's TAS practice under your leadership. 

Michael Braverman: 

Sure. So, I've been doing this for over 35 years now. I started my career with Pricewaterhouse, which most people today know as PWC. I was fortunate to wind up on large clients who were very active in the M&A market and about that time in the mid-90s, private equity firms were growing like gangbusters and the need for transaction advisory and financial due diligence services were growing by leaps and bounds and I took the opportunity to transfer into TAS and since then I've worked on hundreds of domestic and cross-border M&A engagements covering a wide variety of industries. As it were, soon after, starting in TAS in the mid-90s, a lot of my private equity clients would come to me six months after a deal and say, we have a post-closing dispute, can you help us with that? Or we have a need for an investigation at a portfolio company. And low and behold, I started also doing M&A and post M&A dispute work in investigations. And so that's basically been my career for the last 25 plus years. So, let me take the opportunity to give you a glimpse of where I see our practice at EisnerAmper going. As one of the largest accounting consulting firms in the U.S., our TAS practice is going to continue to move up market by serving larger middle market buyers and sellers, including cross-border deals and businesses with more complex operating structures. As I think everybody would know, we provide cradle to grave of M&A services, both upfront pre-due diligence structuring, both from a tax diligence and compliance side, the accounting structuring for a deal. We also do capital markets and sell side advisory, and as I mentioned before, we’re available on the, if you will, the tail end of the deal. And so, I like to think of it as sort of like I said, the cradle to grave. We also bring to bear IT diligence and benefits due diligence when needed. And as middle market companies continue to get more sophisticated and global, our capabilities and our approach to work are going to continue to evolve. 

Elana Margulies-Snyderman: 

Mike, as a follow-up, what does a 2025 dealmaking landscape look like? I'd love for you to touch upon key trends or expectations as it relates to dealmaking and M&A that we should be aware of as we enter into next year. 

Michael Braverman: 

Of course, if we all had that crystal ball right, everybody's waiting to see how the new administration's going to impact 2025 M&A activity. Interestingly enough, we have the post-election bump and the stock markets. Many dealmakers, a few Trump's nomination leading to less government regulation, and hopefully a continued deduction in interest rates, which would lead to increased M&A activity. With some of the election uncertainty behind us and plenty of pent-up demand for M&A activity, the playing field is wide offering for PE firms and corporates to pursue deals. Balancing that, of course, is continued uncertainty regarding economic policy, whether the effect of any tariffs on imported goods may have. Considering these and other factors, there seems to be a general consensus by dealmakers that 2025, we'll see a 10-to-15% increase over 2024 in the amount of M&A activity and that's actually up over 2024 that was up over 2023. So, let's keep our fingers crossed. 

Elana Margulies-Snyderman: 

Mike, I know you wear two hats at the firm. Obviously, we discussed you’re national leader of our Transaction Advisory Services practices, and as well, I wanted to let listeners know that you also are a leader in the firm's Forensic Litigation Valuation Services practice, particularly with respect to post M&A disputes. With that being said, are there any important pieces of advice that you have for clients to mitigate potential post-closing disputes? 

Michael Braverman: 

That's a great question, Elana, and serving in both roles I think gives me a very interesting lens, a great perspective on how to advise on the front end of a deal because I've been plenty of times at the tail end of a deal. And so, as I'll touch on this a little bit further in the podcast, the more thorough buyers and sellers can be in their diligence process, the better prepared they're going to be to mitigate post-closing disputes. As one common example I've seen many times, many deal agreements provide that the seller slash targets financial information is both consistent with past practices as well as compliant with a particular basis of accounting. So, for example, GAAP, all too often the two provisions that are at odds with each other. For example, a target company's past practices might not be in compliance with GAAP, and this can present challenges during the post-closing dispute resolution process. I want to also emphasize; I think it's important for buyers to be keenly aware of proforma normalized EBITDA they're using to value a target. If post-closing, it comes to their attention that there was an error in that normalized EBITDA that would materially and adversely affect their valuation model, it becomes a challenge to renegotiate, arbitrate, or litigate that circumstance, even with the appropriate reps and warranties in place so caution is in diligence, can't be emphasized enough there. 

Elana Margulies-Snyderman: 

Mike, there are many considerations companies need to think about when contemplating a transaction, and I wanted you to share some best practices you would give a company considering a buy-side transaction. I would love to hear your thoughts about a sell-side transaction too. 

Michael Braverman: 

So, my answer is the same to both buyers and sellers in big capital letters and flashing lights. Be prepared. For sellers, start by getting your accounting housekeeping in order. If you're looking to exit a business or even if you're looking to do an acquisition, prepare by having sound and complete accounting records, particularly compliance with accrual accounting GAAP or another agreed accepted basis of accounting, that's going to govern the deal agreement. That'll make the diligence process smoother and more cost effective while potentially mitigating surprises for both buyers and sellers. Sellers should understand where historical accounting may have errors, for example, out of period adjustments and make the necessary corrections prior to sharing any financial information with respect. Buyers’ quality of earnings or QofE analysis should be thorough. They should identify non-recurring type items, manager owner expenses that'll go away post-closing, and buyers and sellers should both consider the continuity of customers or any major customers going away. Are there any related revenue impacts of that? Are there any missing expenses that may be incurred post-closing or other factors to present a normalized EBITDA and reflect the business in the post-sale condition? Not only should this all help level set a seller's expectations, as I said earlier, it's going to facilitate the buyer's due diligence work and make it all a lot smoother. One other important factor I'd add is it's important to consider historical compensation, contingent liabilities, things that are off balance sheet, but maybe on balance sheet liability post-close, bonus and equity schemes such as changing control provisions and things are there that you want to mitigate surprises for. 

Elana Margulies-Snyderman: 

Mike, we've covered a lot of ground today and wanted to see if there are any final transaction recommendations you would like to share with us. 

Michael Braverman: 

Sure. I mean, that's a laundry list, but the one, again, the benefit of my post M&A dispute work has helped me greatly in advising clients in the front-end due diligence phase in the contract drafting. Pay close attention to deal agreement provisions, particularly closing conditions such as the closing balance sheet, networking capital, if it's an earnout, whatever those targets are going to be. Make sure the accounting principles are clearly defined as well as reps and warranties when agreements fail to clearly define what the basis of accounting is for determining balance sheet networking, capital EBITDA, you're on the road to a recipe for a dispute, and so my advice is to take great care on the front end to help mitigate some of the problems that could happen on the backend. 

Elana Margulies-Snyderman: 

Mike, I want to thank you so much for sharing your perspective with our listeners. 

Michael Braverman: 

My pleasure, Elana, and happy to do it. 

Elana Margulies-Snyderman: 

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this in a host of other topics and join us for our next EisnerAmper podcast when we get down to business.

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