Pro Forma Financial Statements

The eXtensible Business Reporting Language, a standardised digital format for the exchange and analysis of financial and business information. XBRL is mandated by regulators in many jurisdictions for filing financial statements and enables automated analysis of intangible asset disclosures, impairment charges, and productivity metrics across large datasets.

A detailed financial analysis, typically prepared by an accounting firm on behalf of a buyer or lender, or for the seller before a sale (a sell-side QoE), that assesses the sustainability, accuracy, and adjustability of a target company's reported earnings. A QoE report examines revenue recognition policies, non-recurring items, related-party transactions, working capital normalisation, pro forma adjustments, and the bridge from reported EBITDA to normalised EBITDA.

The agreed level of working capital that the target business should have at the completion of an M&A transaction, established during negotiations and used as a benchmark for purchase price adjustments under a completion accounts mechanism. The target is typically set at the average net working capital over a 12-month trailing period, normalised for seasonality and non-recurring items.

A pricing mechanism in M&A transactions where the purchase price is fixed based on a set of accounts prepared at a specified date prior to completion, with value leakage protections to ensure no value is extracted from the target between the locked box date and closing. Locked box mechanisms provide price certainty and avoid the disputes often associated with completion accounts adjustments.

An independent assessment, typically prepared by an investment bank or valuation firm, that evaluates whether the financial terms of a proposed transaction are fair from a financial point of view to a company's shareholders. Fairness opinions are standard practice in significant M&A transactions and require rigorous valuation of both tangible and intangible assets.

A formal written assessment, typically prepared by an independent investment bank or valuation firm, evaluating whether the financial terms of a proposed transaction are fair to a company's shareholders from a financial point of view. Fairness opinions are standard practice in M&A transactions and are relied upon by boards of directors to discharge their fiduciary duties.

A contractual provision in acquisition agreements that allows the buyer to withdraw from or renegotiate a transaction if the target company experiences a significant negative event between signing and closing. MAC clauses define what constitutes a material change and typically exclude general market downturns, industry-wide conditions, and changes in law, focusing instead on company-specific deterioration.

A legal concept in M&A agreements defining a significant deterioration in the target company's business, operations, financial condition, or prospects that may give the buyer the right to terminate the transaction or renegotiate the purchase price before completion. MAE definitions are among the most heavily negotiated provisions in sale and purchase agreements, with carve-outs typically excluding general market conditions, industry-wide changes, and events resulting from the announcement of the transaction itself.

How long does it take to sell a business?

A well-run sale process usually takes six to twelve months from going to market to completion, but the preparation that determines your price should begin twelve to twenty-four months earlier.