Why tax-efficient mergers and acquisitions matter
Companies with global ambitions cannot afford to ignore the opportunities for possible growth offered by mergers, acquisitions and disposals. But if these transactions are to create real value, it is important that the tax implications of each deal are dealt with from the onset. This is especially important in cross-border deals, where differing regulations and business cultures need to be reconciled in order to reveal the risks and opportunities of a transaction.
Similarly, private equity seeking to increase return on investment cannot afford to ignore tax. Recent trends show that M&A transactions have become more international and deal volumes have increased tremendously. Highly-leveraged transactions allow for big ticket deals, in particular within private equity market.
Understanding how a deal is done
In a highly professional and competitive deal environment, many transactions are organized as structure auctions. Only the strongest bidder will win. When strategic investors compete with private equity for a few attractive target offered, understanding how a deal is done becomes critical. To assess the real value of a transaction you need to understand the historical tax risks associated with an enterprise for sale. To win an auction, you can also need to evaluate and quantify upside potential. In many cases, tax can make a difference.
Getting the timing right
Running an M&A process means coordinating many different work-streams within a very strict timeline. In the auction processes, there is little flexibility surrounding bid deadlines. Deadlines are short to keep management attention to an acceptable minimum. Valuable time can be lost just trying to organize your deal team. Tax due diligence, international acquisition structuring and modeling tax in the acquisition target's business forecast should be addressed immediately.