Mergers and Acquisitions are Hot!!
May 26, 2022
Summer isn't the only thing heating up this year. The merger and acquisitions market hit a record of $2.9 trillion in transactions in 2021, an increase of 55% from 2020, and things are still heating up.
We see a wealth shift in our practice as Baby boomers and Generation X look to succession planning and exit strategies. Many experts call this the Great Retirement and surmise that the last few years of COVID have had many business owners take a long look at their priorities, stress levels, and health as contributing factors to selling their business.
As middle-aged business owners are looking to sell, now is an excellent time to buy an existing business. Purchasing a new company requires patience while the experts gather the business intelligence and financial health to ascertain the value of the business.
During the M&A process, your attorney will focus on liability protection and structuring the agreement for selling or purchasing the business. Your CPA will review the company's audited or non-audited financial statements and analyze various data to determine if the deal is good (from either Seller or Buyer's point of view) and your potential tax consequences/benefits of the transaction. In many cases, the Buyer prefers an asset sale, while the Seller selects a stock sale due to various reasons, but most often, taxation is the culprit.
We recently represented the Seller and closed an $11 million M&A deal where the Seller's tax attorney almost failed to explain to our shared Client what a 338(h)(10) election meant. Structuring the deal under 338(h)(10) allows the parties in a corporation's stock sale to treat the transaction for federal income tax purposes as if it had been structured as an asset sale. It would have cost our Client a few hundred thousand dollars of extra taxes without his knowledge.
Many CPAs have a "checklist" of activities they perform as part of their M&A due diligence process. The real benefit to clients is working with a CPA that will take the time to look beyond the numbers, ask essential questions, and identify concerns or issues. We commit to taking the time to understand your goals for purchasing or selling a business and will explain what the numbers mean to your company and how they will impact your strategy and plans for the future.
Contact our team to discuss when you are considering your next merger or acquisition.