Deal Notes

Addbacks

“Addbacks”, in the jargon of M&A, are one-time expenses that can be legitimately added to a company’s EBITDA. The key to “Addbacks” is that they are legitimate, meaning they are expenses that a new company owner will not incur post-acquisition.

While there are many examples, some of the most frequent include the following:

  1. Discretionary: expenses that do not necessarily contribute to the operating results of the business and are unlikely to continue under a new owner. These can include excess owner compensation and benefits, and certain travel and entertainment.
  2. Non-operating: expenses that are not required in or related to the operations of the business. These can include excess rents paid to affiliates and charitable giving.
  3. Non-recurring:  expenses that are one-time in nature and unlikely to occur again in the future. These can include facility relocation expenses, one-time technology upgrades, and M&A transaction-related costs.
  4. Accounting Adjustments: expenses that you may not have recognized in the past but will be recognized by the buyer post-acquisition. Unfortunately, these “Addbacks” often result in a reduction to your EBITDA, not an improvement. Depending on the buyer (for example, if they are publicly traded or a large PE firm), they may be required to take charges for accruals and reserves, which will result in lower EBITDA. We refer to these as “Negative Addbacks”.

Have a great day everyone.

Bruce Andrews
Managing Director, Defense
M: 631.445.3603
E: rba@aldermanco.com
www.aldermanco.com