'Profits Before Expenses!'
From the Folio: Show, Day Three: In a well-attended (20 or so people) and excellent presentation on the structure of building an M&A transaction, the conversation turned to "add-backs," the kinds of items a seller will tell the prospective buyer that he can discount on the expense side because they won't be there after the sale. It's often things like club memberships, cars, or if the owner is paying himself an unusually high salary, some portion of that. Naturally, the seller wants to throw in as many add-backs as possible, because taking out costs means profits are higher, and higher profits (or EBITDA) means a higher transaction price. But sometimes the chase of a higher selling price causes the seller to get over-zealous. Clay Hall, CEO of Aspire Media and moderator of the session, told the story of one such case, where the seller included two full pages of add-backs. Hall described his exasperated response: "You've invented a new accounting term," he says he told the seller. "Profits before expenses!"
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