The Role of Professional Valuators in Supporting Successful Mergers & Acquisitions
The goal of any corporation is growth, whether achieved organically or inorganically. Globally, 30–50% of corporate growth is driven by inorganic methods such as mergers and acquisitions (“M&A”). This trend is particularly pronounced in high-technology, healthcare, and pharmaceutical industries due to high research and development (“R&D”) costs and the strategic appeal of acquiring existing intellectual property. For instance, Google (Alphabet) has experienced tremendous growth through over 200 acquisitions since its inception.
In North America, M&A activity slowed over the past two years due to high interest rates and uncertainty surrounding the U.S. presidential election. However, with interest rates now declining and the election concluded, M&A activity is projected to increase in 2025 and beyond. The table below illustrates the value of M&A activity in Canada and the U.S. over the past five years:
| VALUE OF MERGERS & ACQUISITIONS ACTIVITY | ||
| Year |
Canada (in billions of US$) |
United States (in trillions of US$) |
| 2024 | 89 | 1.8 |
| 2023 | 81 | 1.6 |
| 2022 | 94 | 2.9 |
| 2021 | 150 | 2.9 |
| 2020 | 71 | |
Business combinations, including M&As and partnerships, can accelerate growth more rapidly than organic strategies. However, they come with higher risks, such as integration challenges and substantial capital requirements. Moreover, significant due diligence is needed before acquisition and compliance requirements must be met, post-acquisition.
The Role of Valuation Professionals
Valuation professionals, including business valuators and tangible asset appraisers, play a critical role throughout M&A transactions. Their expertise supports the acquirer in both pre-acquisition and post-acquisition processes.
Pre-Acquisition Due Diligence
During this stage, valuation professionals can provide:
- Business Enterprise Valuation (BEV):
- Independent valuation of the target company to ensure accurate, unbiased assessments for purchase negotiations and future planning.
- Tangible Asset Valuations:
- Preliminary verification and valuation of property and assets slated for acquisition.
- In horizontal acquisitions involving multiple facilities, accurate valuations on a per-facility basis can guide decisions about which facilities to retain, sell, or liquidate.
Post-Acquisition: Financial Reporting
Valuation professionals are essential for ensuring compliance with financial reporting standards, which differ slightly between the U.S. and Canada:
United States: Under ASC 805: Business Combinations (U.S. GAAP) acquired assets and liabilities must be measured at fair value on the acquisition date. This process, known as purchase price allocation (PPA), includes:
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- Identifying tangible and intangible assets.
- Assessing liabilities, including contingent liabilities.
- Calculating goodwill as the residual value after allocating the purchase price to the fair value of net identifiable assets.
Canada: Under IFRS 3: Business Combinations, fair value measurement and goodwill calculation requirements align closely with ASC 805.
Post-Acquisition: Tax Reporting
Valuation professionals also help meet tax reporting compliance requirements, including asset revaluation, depreciation, and assessing potential tax liabilities resulting from the transaction.
Valuation at Fair Value
Fair value measurement is central to both financial and tax reporting in M&A transactions. It involves:
- Identifying and Valuing Assets and Liabilities:
- Tangible assets: Property, plant, and equipment.
- Intangible assets: Trademarks, patents, customer relationships, contracts.
- Financial assets and liabilities: Investments, debt.
- Valuation Methodologies:
- Market approach: Comparison to similar transactions or market data.
- Income approach: Discounted cash flows or other income-based methods.
- Cost approach: Replacement or reproduction cost.
Additional Services Provided by Valuation Professionals
Professional valuators can also offer additional services, such as:
- Fixed Asset Systems Integration:
- Recording acquired fixed assets to align with the acquiring company’s systems (e.g., SAP).
- Asset Management Support:
- Recording production equipment technical details to support the implementation of asset management plans.
- Insurance Appraisal:
- Providing valuations for adequate insurance coverage.
Why Engage Qualified Valuation Professionals?
The complexity of valuation requirements, such as purchase price allocation, necessitates the engagement of experienced, independent valuation professionals. A well-reputed valuation firm can deliver services that:
- Meet Regulatory Standards: Ensure compliance with financial and tax reporting standards.
- Demonstrate Relevant Expertise: Have industry-specific experience and a proven track record.
- Provide Comprehensive Solutions: Offer a “one-stop” service to eliminate inefficiencies, duplication, and gaps.
Mergers and acquisitions are high-risk, high-reward strategies for corporations seeking growth and diversification. A key component for success is engaging qualified valuation professionals who can provide accurate, compliant, and timely services. Their expertise not only supports informed decision-making but also ensures regulatory compliance, contributing to a smooth and successful transaction.
