Insights

How buyers assess value today

For companies considering a sale or merger, value is rarely determined at the negotiating table—it is built well in advance. In today’s market, buyers are more disciplined, more data-driven, and far less reliant on simple rules of thumb than in the past. As a result, businesses are assessed not just on what they have achieved, but on how clearly they can demonstrate the quality and sustainability of their earnings.

This shift reflects a broader change in the M&A landscape. With the growing influence of private equity and institutional capital, valuation is increasingly grounded in forward-looking analysis. Buyers focus on normalized earnings, cash flow visibility, and the resilience of the underlying business model. Revenue quality, customer concentration, and operational efficiency are all closely scrutinized, alongside the company’s ability to scale.

Getting the numbers right

One of the most common challenges for sellers is financial presentation. Many businesses continue to report on a cash basis, which can obscure the true economics of the business. Buyers, however, evaluate targets using accrual-based financials, looking at receivables, work-in-progress, and liabilities to form a complete picture. Converting to accrual accounting ahead of a transaction can materially improve transparency and reduce friction during due diligence.

Equally important is the normalization of earnings. While buyers will independently adjust for one-off items, non-recurring costs, and owner-specific expenses to arrive at a sustainable level of profitability, sellers are better served by defining this upfront. Taking control of the normalization process—rather than leaving it to be reconstructed during diligence—allows sellers to anchor the discussion, shape the narrative, and reduce the risk of conservative adjustments by buyers.

In our experience, this is a key area where value is often won or lost. We frequently see owner compensation structured in a way that does not reflect economic reality, with bonuses or distributions embedded within operating expenses. We work with clients to normalize these items—aligning remuneration with market levels and actual time commitment—to present a clear view of sustainable earnings. When properly structured and supported, this not only strengthens credibility but can have a direct and measurable impact on valuation.

Another area that often comes into focus is working capital. Transactions are typically structured on a cash-free, debt-free basis, with an expectation that the business is delivered with a normalized level of working capital. If this is not properly managed in advance, it can lead to price adjustments late in the process.

Bottom line

Given the level of scrutiny applied in today’s transactions, many sellers undertake a pre-sale Quality of Earnings review to identify and address issues early and present a clear, consistent financial story. The best outcomes are achieved by businesses that approach a sale with the buyer’s perspective in mind. Preparation goes beyond due diligence and ultimately focuses on positioning the business so its value is clearly understood and defensible.

At InterAsia Advisory, we work with business owners ahead of a transaction to position their business for a successful process and optimal valuation outcome.