M&A, DIVESTITURES AND REORGANIZATIONS
Whenever a change in the corporate structure is contemplated, tax considerations have a critical role in determining the deal structure.
Mergers and Acquisitions (M&A)
In mergers and acquisitions, certain structures may be needed to be put in place prior to the deal taking place. Sometimes certain elections either before or after the acquisition will be advantageous but will need to be agreed to or performed by the sellers, so it is important to include these in the early negotiation phase. How to best finance the transaction that will be the most tax efficient for the company is another matter that requires care.
Reliable management of the tax due diligence process is key in identifying items which will be to our advantage to reflect in the purchase agreement, as well as identifying items that may require attention after closing. We need to know what we are getting ourselves into. We may want to reflect in the purchase agreement how future tax filings, audits and settlement processes will be dealt with by us and the sellers.
Post-acquisition cross-functional integration plan needs to be developed to meet management’s goals and objectives. After all, there was a business reason for buying this venture and the post-acquisition integration is key to meeting this business objective.
When disposing of certain portions of the business, there needs to be a process of how to package the divested business segment – whether as an asset deal or stock deal. Either way, without proper planning, up to the entire value of the divested business may be subject to tax. Usually, some restructuring and reorganizations may be beneficial preceding a divestiture.
Implementing a divestiture plan, like implementing an internal reorganization plan, is a multi-functional task, which often involves various functions of the business, including human resources, customer support, IT and legal. The divestiture planning will require a holistic approach and will involve the various functions of the business to ensure no otherwise unexpected adverse consequences.
Efficiently managing the gathering of information and its presentation to the potential buyer during the tax due diligence process may affect the value of the transaction.
Reorganizations and liquidations
Similar to planning a divestiture, reorganizations need to be carefully planned, with a holistic approach, involving various functions of the business.
Reorganizing intellectual property rights may be required after an acquisition or due to changing rules of international tax. Any such transfers must consider all alternatives to ensure the best post-tax outcome.