Deal Advisory, Mergers & Acquisitions case study 

Deal Advisory, Mergers & Acquisitions (Deal Advisory, M&A) tax practice’s large global network of professionals was able to assist two private equity funds, which own a portfolio entity as a co-investment (club deal), develop a tax structure for a buyback of debt owed by a portfolio entity.
Buildings through fish-eye lens


Anneli Collins

Anneli Collins

Global Head of Deal Advisory, M&A Tax

+44 (207) 694 3403

The team of 50 KPMG member firm tax professionals from 15 different countries all had a full understanding of how tax affects transactions across the world and were therefore successfully able to spot the opportunities and pitfalls, as well as develop an appropriate investment structure that accommodated the structuring needs identified.



International mergers, acquisitions, and disposals offered great opportunities for profitable growth in recent years. Favorable financing conditions offered by lenders resulted in significant leverage in such acquisitions (see previous Global Mergers & Acquisitions Tax case study). Acquisition debt was commonly syndicated and often the debt of a single leveraged buyout transaction (LBO) is now owed to hundreds of lenders.


The sub-prime debt crisis which started in mid-2007 and the resulting financial turmoil resulted in lending institutions selling their loan receivables in the market at a discount. Initially, distressed situations were traded in the market among financial institutions and hedge funds. But today, even performing LBO financing is traded at discount in the credit market. This situation offers the opportunity for investors to acquire LBO financing granted to their portfolio investments or other borrowers at a discount in the market.


The rationale of such an investment could be to obtain a stream of interest payments calculated on the higher face value and to make a profit on the sale or redemption of the financing in the future. In other cases, the focus is rather to deleverage portfolio entities by their current owners to secure their economic stability in challenging times.


These transactions can only create the best possible value if the tax implications are dealt with by the parties involved from the very outset. This is particularly true for private equity funds since the tried and tested investment structures are commonly designed for equity investments rather than debt investments. In most private equity funds investors from different jurisdictions come together and, as a result, different regulations and business cultures. This requires a team that is able to accommodate tax issues on a global basis —mitigating on the risk of tax miscalculations and misunderstandings inherent in such projects.



The Deal Advisory, Mergers & Acquisitions Tax (Deal Advisory, M&A Tax) practice is a part of a worldwide network of professionals from KPMG member firms. Here, Deal Advisory, M&A Tax was contracted by two private equity funds which own a portfolio entity as a co-investment (club deal). Deal Advisory, M&A Tax was asked to develop a tax structure for a buyback of debt owed by a portfolio entity.


The focus of the deal was to seize the opportunity offered by the acquisition of debt at a discount, given the solid performance of the portfolio entity. Careful tax structuring of the investment vehicle used was key to avoid tax leakage for the investors to the funds, which could arise from the new investment focus on debt instruments. The tough timeline for implementation owed to volatile debt markets as well as structuring constraints triggered by the facilities agreement in place provided additional challenges for everyone involved.


Our approach

The emphasis of the work carried out by Deal Advisory, M&A Tax from the outset was on the potential tax structure of the deal. Driven by a challenging timeline, we established an international client service team including more than 50 dedicated Deal Advisory, M&A Tax professionals from KPMG member firms in more than 15 countries.


In many jurisdictions, tax rules provide for income recognition at the level of the investors, even if there is no distribution of earnings to the investor. Such taxable income triggers cash tax payments at the level of the investor without receiving cash to cover this exposure, referred to as dry income. Testing various structuring alternatives for potential tax impacts on the investors to the funds, the investment vehicles and also the portfolio entity owing the debt, was the main focus of the work and allowed our team to identify and select the most beneficial combination fast, thereby allowing our clients prompt implementation and execution of the deal.


Information needed for the structuring, such as the underlying investor base, was collected early in the process. Due to the highly confidential nature of the investor base, KPMG served also as a black box to shelter such confidential information from insight by different private equity funds involved as co-investors. KPMG developed an anonymous sample for an analysis of the potential tax implications in the jurisdictions where the investors reside, covering more than 80 percent of the investor base.


The professionals of Deal Advisory, M&A Tax involved were able to make a valuable contribution to the overall success of the transaction because they understand how tax affects transactions across the world, were able to spot the opportunities and pitfalls and to develop an appropriate investment structure that accommodated the structuring needs identified.



The multinational team of Deal Advisory, M&A Tax delivered value that allowed the client’s prompt execution to seize the opportunity and avoid detrimental tax effects, such as tax leakage and dry income issues, for the investors.