Recently, we were asked whether a company should incur the expense of upgrading its annual financial statements from a Review to an Audit if the shareholders are considering a sale in the near future. We surprised the shareholders when we told them that is actually the wrong question to ask.
Instead, the better question is: “Does your CPA firm have substantial experience with accounting due diligence in an M&A process?”
While audited financial statements represent the gold standard, reviewed statements typically provide a comparable level of comfort to buyers of middle-market aerospace and defense companies. Exceptions certainly exist—particularly for businesses with complex accounting structures, such as significant intercompany transactions with entities excluded from the sale. In most standard scenarios, a buyer’s baseline confidence in your financial results will differ only marginally between an Audit and a Review.
Conversely, buyers will have vastly different levels of confidence based entirely on the M&A experience of your accountant. This reality has been proven to us continually over the past 25 years. In almost every transaction where a client utilizes a CPA firm with meaningful M&A experience, they navigate buyer due diligence much faster and with far fewer friction points. In many cases, that experience directly dictates the final financial outcome:
- Accountants with M&A Experience: Transactions usually close at, or very close to, the original Letter of Intent (LOI) price.
- Accountants without M&A Experience: Transaction prices often erode substantially during the due diligence phase.
The Bottom Line: From an M&A perspective, in the middle market, an Audit is often slightly better than a Review—but an accountant with deep M&A experience is exponentially better than one without.
Have a great day, everyone,
William Alderman
Founding Partner
