An article by Andrea Balletbo from Tech M&A advisory firm L40º

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In an M&A transaction, preparation determines how efficiently a process runs and how confidently buyers underwrite value.

When a technology company enters the market, private equity firms, growth investors, and strategic acquirers evaluate it through a structured lens. They assess:

• the sustainability of earnings
• the durability of revenue
• the mechanics of cash generation
• the discipline of reporting
• the clarity of ownership and incentives

If you are considering a sale, getting your financials ready is not a last-minute clean-up before launching a process. It is a deliberate effort. The goal is to ensure your numbers are consistent, defensible, and aligned with how institutional buyers think. Diligence should be a confirmation exercise. It should not become a reconstruction exercise.

This is particularly relevant in mid-market and cross-border technology M&A. Differences in accounting standards, reporting maturity, and corporate structure can introduce unnecessary complexity.

Below are five areas technology company founders, investors, and PE sponsors should address well before going to market — and that fund managers should ensure their portfolio companies have covered well before any exit process begins.

1) Transaction-Grade EBITDA: How to Define Adjusted Earnings Before the Buyer Does

Your management P&L will be the starting point of the conversation. However, it will not be taken at face value when buyers assess risk and value.

In any sell-side M&A process, institutional investors rebuild earnings. They move from reported EBITDA to what they consider transaction-grade EBITDA. That reconciliation often shapes how valuation is framed.

Founders should prepare that bridge before launching a process.

This includes:

• A clear reconciliation from reported EBITDA to adjusted EBITDA
• Transparent normalization of founder compensation
• Identification of non-recurring expenses
• Consistent treatment of one-off revenues or costs
• Alignment of accounting policies across reporting periods

If certain expenses are capitalized, the logic should be documented and consistently applied. If revenue recognition policies have evolved over time, the changes should be clearly explained.

In cross-border technology M&A, this discipline becomes even more important. Differences between GAAP and IFRS presentation can create interpretive gaps. Those gaps should be reconciled before diligence begins.

The objective is not to maximize adjustments. It is to ensure earnings are clear, defensible, and repeatable.

When that work is done in advance, discussions around EBITDA become structured and efficient. When it is not, valuation debates tend to follow.

2) ARR Reconciliation and Revenue Durability: Making Revenue Underwriting Straightforward

Buyers pay for revenue they can understand, model, and defend internally.

The truth is that while revenue growth is important, it is not sufficient on its own. Institutional buyers look beyond top-line expansion. They examine how revenue is generated, how predictable it is, and how it converts into cash.

There are two main elements to address.

First, preparation starts with reconciliation. ARR, recognized revenue, and cash collections should tie together clearly. If they do not, the differences must be explainable. Bookings, billings, and revenue require precise definitions. Those definitions should be applied consistently across reporting periods.

Second, retention metrics require the same discipline. Gross retention and net retention should be clearly calculated and cohort-based where possible. Client concentration should be transparent. Contract duration, renewal mechanics, and termination rights should be documented.

Furthermore, if the business includes services or implementation revenue, it should be clearly separated from recurring software revenue. The margin profile of each stream should be visible.

In mid-market technology M&A, revenue durability drives underwriting confidence. Buyers need to understand what portion of revenue is contractual, what portion is behaviour-driven, and what portion depends on continued sales execution.

When revenue mechanics are clear, buyers can model with confidence. When they are not, uncertainty enters the process.

3) EBITDA-to-Cash Bridge: Demonstrating Cash Conversion and Working Capital Mechanics

Profitability is one measure of performance. Cash generation is another.

Institutional buyers will move from EBITDA to cash flow. They will assess how earnings translate into liquidity and how working capital behaves over time.

Preparation here requires clarity.

Start with an EBITDA-to-cash bridge. Show how operating profit converts into operating cash flow. Movements in accounts receivable, accounts payable, and deferred revenue should be visible and consistent.

Billing cycles and collection patterns should be documented. If the business has seasonality, explain it. If working capital fluctuates due to growth, show the mechanics.

Define what “normal” working capital looks like for your business. Buyers will calculate a target working capital level as part of the transaction. That target should not be a surprise.

CAPEX versus OPEX classification should also be consistent. If certain investments are capitalized, the rationale should be clear.

The importance of this cannot be overstated. A SaaS company billing annually upfront will look very different in working capital terms than one billing monthly: the first generates deferred revenue that unwinds over the year, while the second shows tighter cash cycles. Buyers need to understand which model they are underwriting, and why the numbers look the way they do.

For cross-border technology companies, additional discipline is required:

• Intercompany flows should be transparent.
• FX exposure should be understood and explained.
• Entity-level cash balances should reconcile cleanly.

Working capital mechanics influence deal structure, purchase price adjustments, and post-close true-ups. They should be understandable before diligence begins.

4) Portfolio Reporting Infrastructure: Building Buyer-Grade Reporting Discipline

Financial preparation is not limited to the numbers themselves. It also includes how those numbers are produced, forecasted and presented.

In this sense, both acquirers and investors consider reporting discipline as part of risk underwriting. A consistent and structured reporting cadence signals operational maturity.

Start with the close process. A monthly close should be timely and repeatable. Changes in accounting policies should be documented. Definitions of KPIs should not shift from quarter to quarter.

Produce full financial statements on a recurring basis. The P&L may be central to your reporting, but it is not sufficient on its own. The balance sheet and cash flow statement must also be visible and consistent.

KPI dashboards should reconcile directly to financial statements. ARR should tie to revenue. Revenue should tie to cash collections. Forecasts should be supported by assumptions that can be explained.

Variance analysis is also important. Buyers will compare actual performance against budget and prior forecasts. Historical forecast accuracy provides insight into management discipline.

Finally, the data room should reflect the same level of structure. Financial schedules, contracts, cap table information, and supporting documentation should be organized and complete. Working with an experienced and trusted M&A advisor such as L40º ensures that the data room is structured properly and that information is presented in a way that facilitates diligence rather than complicates it.

In a sell-side M&A process, the data room becomes the operational backbone of the transaction. Its organization and clarity influence how efficiently a process unfolds.

For PE sponsors managing multiple portfolio companies simultaneously, maintaining this level of reporting consistency across a fund requires dedicated infrastructure. Portfolio management platforms such as cofi.ai are purpose-built for exactly this challenge — enabling GPs to consolidate financial data, track KPIs, and maintain audit-ready reporting standards across their portfolio, so that when an exit process begins, the reporting infrastructure is already in place rather than built under pressure.

5) Cap Table Clarity and Incentive Structure: What Buyers Evaluate Beyond the P&L

Beyond operating performance, ownership structure and incentive alignment are also central to how a transaction is evaluated.

Before launching a process, the capitalization table should be accurate, fully reconciled, and clearly presented. Buyers will review it early. Investors will want clarity on dilution, control, and post-transaction alignment.

Ensure visibility on:

• Fully diluted ownership
• Option pools and vesting schedules
• Outstanding convertibles, SAFEs, or warrants
• Change-of-control provisions
• Shareholder agreements and transfer restrictions

Management incentives should be clearly structured and properly documented. Buyers will assess retention plans, rollover expectations, and post-transaction equity participation. A smooth transition materially influences the acquirer’s perception of risk.

Board alignment is equally important. Entering a process without clarity on exit expectations, valuation ranges, and transaction structure can create unnecessary internal tension. Alignment across founders, management, and investors supports a controlled and coherent process.

This is also why capital structure decisions made during fundraising might somehow shape exit outcomes. Valuation levels, liquidation preferences, participation rights, and other protective provisions influence distribution waterfalls. These mechanics should be understood well in advance. Founders and investors should be aligned on how value will be realized across the shareholder base.

A clear and organized ownership structure reduces friction in negotiations. It keeps discussions centred on valuation and strategic fit rather than structural complexity.

For fund managers overseeing multiple portfolio companies, maintaining visibility across cap tables, vesting schedules, and ownership structures at the fund level adds another layer of complexity. Purpose-built portfolio management software such as cofi.ai gives GPs a centralized view of ownership data across their portfolio, making it far easier to produce the clean, reconciled cap table documentation that buyers expect from day one of a process.

Exit Preparation as Leverage

At L40, much of our work with founders and investors begins well before a company formally enters the market. Financial preparation is not a reactive step. It is part of structuring a controlled and disciplined sell-side M&A process.

In mid-market and cross-border technology M&A, preparation creates leverage. It allows founders and investors to enter the market with clarity and alignment. It reduces interpretive risk during diligence. It supports a structured and predictable process.

Financial readiness does not guarantee a specific valuation. But, it does ensure that engagement with institutional buyers takes place from a position of organization and confidence.

In M&A, leverage is rarely accidental. It is built through preparation and control of the process from the outset. That preparation increasingly requires both trusted advisory relationships (such as those L40º provides in mid-market and cross-border technology M&A) and the right operational infrastructure at the fund level. Portfolio management platforms like cofi.ai help PE sponsors ensure that the financial reporting, KPI tracking, and portfolio visibility they need to support an exit process is already embedded in how they manage their funds, long before a process begins.

Key Terms: M&A Financial Readiness Glossary

Transaction-Grade EBITDA: The normalized, adjusted EBITDA figure that institutional buyers use to underwrite value in an M&A transaction. It begins with reported EBITDA and applies documented adjustments, such as founder compensation normalization and non-recurring expense removal; to arrive at a defensible, repeatable earnings figure.

ARR Reconciliation: The process of ensuring that Annual Recurring Revenue (ARR) ties cleanly to recognized revenue, which in turn ties to cash collections. Buyers require this reconciliation to confirm that ARR metrics are grounded in financial reality and not defined differently across reporting periods.

Working Capital Normalization: The process of defining what a “normal” level of working capital looks like for a business, used to set the target working capital peg in a transaction. Buyers use this peg to calculate purchase price adjustments and post-close true-ups. Surprises here can materially affect net proceeds.

EBITDA-to-Cash Bridge: A structured schedule that shows how EBITDA converts into operating cash flow, accounting for movements in working capital, capex, tax, and other cash items. Institutional buyers use this bridge to assess the quality of earnings and the true cash-generating capacity of the business.

Sell-Side Quality of Earnings (QoE): A financial analysis commissioned by the seller before going to market that pre-empts buyer diligence by independently verifying and adjusting reported earnings. A sell-side QoE reduces surprises during diligence, builds buyer confidence, and supports a faster, more controlled process.

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