M&A Spotlight: Business Valuation Guidance Remains Critical After Closing

Apr 13

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Business owners often turn to valuation professionals for help during the merger and acquisition (M&A) process. However, their expertise extends beyond establishing reasonable price expectations, structuring transactions, and evaluating deal terms. Valuators can continue to provide support after closing to help ensure buyers achieve expected results and avoid post-acquisition pitfalls.

Hot M&A Market

The M&A market is poised for significant activity in 2026, building off the momentum from the second half of 2025. In fact, dealmaker sentiment has reached a six-year (post-pandemic) high, according to a January 2026 Citizens Bank survey of 400 U.S.-based companies, along with private equity firms that invest in U.S.-based companies with revenue between $50 million and $1 billion. Of those surveyed, 52% of the companies and 69% of the private equity firms rated the market as somewhat or extremely strong. Key reasons for middle-market optimism include:

Improved economic conditions,
Enhanced planning certainty,
Lower interest rates, and
Increased pricing multiples.

Many respondents (39% of the companies and 49% of the private equity firms) expect valuations to rise further in 2026. Under these conditions, the pool of potential buyers and sellers has noticeably expanded. Of those surveyed, would-be sellers increased from 73% in 2025 to 79% in 2026; would-be buyers jumped from 56% to 61% over the same period.

A higher supply of potential sellers than potential buyers may suggest that buyers generally have more negotiating leverage than sellers. But higher negotiating power doesn't necessarily equate with higher M&A success rates, and survey sentiment doesn't eliminate execution risk. Over the long run, many deals fall short of buyer expectations, often due to poor post-deal planning and integration.

Integration hurdles

Failure to effectively integrate the companies post-closing is one of the most frequently cited reasons M&A transactions underperform. Integration assumptions often underpin the buyer's pricing model. If employees are unable or unwilling to work together effectively and efficiently, the combined entity won't achieve its expected cash-flow and cost-saving synergies, causing the buyer to overpay.

So, before the deal closes, management should address such integration issues as:

Which company's administrative policies and procedures will the new entity follow?
Which entity's standard employment arrangement (including benefits and contractual restrictions) will prevail?
Which locations will close or merge with another?
Which positions can be eliminated or combined?
Which computer system will become the standard for the combined entity?
Are there any assets or divisions that the buyer plans to divest within the next year?

Another important part of post-deal integration is promptly renegotiating contractual agreements with suppliers, customers, employees, lenders, and other stakeholders. In some situations, the buyer may need to obtain consent to assign contracts to a new owner.

It's critical to align pricing assumptions with the realities of post-closing execution. A valuation professional can help identify potential integration hurdles and assess whether projected synergies, cost savings and divestiture plans are realistic and properly incorporated into financial models.

Tax and Accounting Issues

After the deal closes, the merged companies will prepare combined financial statements and federal and state tax returns. Consolidation of the financial reporting function requires management to choose between different accounting systems, methods, policies, and personnel as soon as possible.

If the merged companies use different accounting methods for tax or book purposes, management may need to evaluate accounting method changes, restate comparative financial statements, or make additional tax elections. Failure to synchronize enterprise resource planning software could slow the collection of financial data or even lead to missing or inaccurate data.

After the deal closes, the buyer must also allocate the purchase price to the company's assets and liabilities. Some indefinite-lived intangibles may require impairment testing in subsequent periods. Inaccurate intangible asset valuations and hasty purchase price allocations may lead to unnecessary write-offs in the future.

Accounting issues can, in turn, give rise to tax liabilities and complications. For example, you may inadvertently trigger a tax liability if the IRS decides that parachute clauses paid to departing executives are excessive. Or business income may be subject to higher taxes if you consolidate operations in a less favorable tax locale than your previous locations. In addition, merging employee stock option programs can potentially have tax implications for your company and its employees.

Deals between companies in different countries may create additional tax complexities. This is especially likely if in-house accounting personnel are unfamiliar with the tax laws in the seller's country.

Independent appraisal expertise is essential to ensure accurate valuations of intangible assets and purchase price allocations. A valuator can also help align tax elections and financial reporting positions with the economic substance of the transaction, reducing the risks of audit adjustments and IRS challenges.

The Work Continues After Closing

M&As can be exciting and stressful transactions. It's common to view closing as the finish line, but it marks the beginning of execution. Purchase price allocations, integration decisions, tax elections, and financial reporting requirements can ultimately affect whether deals succeed over the long run. An experienced business valuation professional can help anticipate potential hurdles, support financial reporting positions, and minimize unexpected hassles, disputes, and costs. Explore our Business Valuation services and see how we can support your next move.

Disclaimer of Liability
Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.