The add-back is only as good as its justification - Mergers and Acquisitions

The add-back is only as good as its justification

Mark Sapsford

Mark Sapsford


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The add-back is only as good as its justification

The Add-Back is Only as Good as Its Justification we take time to make sure we get the balance right. Especially during these unprecedented times

For buyers and lenders to accept these “add-backs” into their valuation and underwriting methodology, add-backs must be reasonable, well-documented, and defensible. We recommend that business owners track the impact that the crisis is having on their business in as much detail as possible.

Tracking should include not only include increased expenses but also lost opportunities, changes to the business, and impact on cash flow. Owners should also delineate between those that are one time in nature and those that will require a continuing effort.

Cast a Wide Net

Below are some practical areas to identify/quantify the impact:

Lost/deferred revenue, including any temporary price reductions or increases.
Changes in product purchasing and sourcing (cost increases, freight expediting, etc.)
Employee/Office safety and cleaning measures (supplies, janitorial service, down time, etc.)
Employee absence or severance costs, and re-hiring costs.
Increased compensation or incentives offered for employees.
Information technology (IT) expenses to accommodate working remotely.
Increased outside professional service costs (legal, HR, financial).
Expenses related to the termination of leases or other operating contracts.

We recommend that owners cast a wide net to capture as many add-backs and adjustments as possible to arrive at the newest important acronym EBITDAC. Remember this has affected every business in the world some way or another. this might not be the case for every business we work with but it is something to take into consideration

Don’t Wait — Start Tracking the Impact Now

While we recognize that owners are struggling with many important issues during these challenging times, it is best to start tracking the impact now. It will be more challenging to capture all these impacts on the business in hindsight, potentially years from now.

Start tracking these today to ensure that more items are captured and there will be adequate support behind each impact, thus creating a more articulate and defensible add-back to EBITDA.

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