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The 'Hows' and 'Whys' of Structuring M&A Transactions
After countless hours of mulling through financial statements and bargaining for every penny your business is worth, you finally arrive at a consensus price. And although you feel this price reflects an accurate valuation of your company's worth, no price will ever reflect all the unique qualities and features that you have worked so industriously to achieve. Now that a price has been agreed upon, you should expect the seller to present you with a bag full of cash, right…Wrong! Structuring the Transaction After countless hours of mulling through financial statements and bargaining for every penny your business is worth, you finally arrive at a consensus price. And although you feel this price reflects an accurate valuation of your company's worth, no price will ever reflect all the unique qualities and features that you have worked so industriously to achieve. Now that a price has been agreed upon, you should expect the seller to present you with a bag full of cash, right…Wrong! Unfortunately you have just reached the term in the transaction process where you and the seller determine the structure at which the business is going to be purchased. This process involves identifying factors and consequences that both you and the buyer face that will greatly affect the deal's structure. These factors include deeds and licenses, legal liability, and employee morale, and possibly the most influential of these factors - Tax Considerations. The tax consequences faced by both the buyer and seller have an important effect on the overall value of the transaction. The buyer and seller are presented with different tax consequences depending upon the type of structure chosen for the transaction. The size and date of the transaction, the type of corporation being acquired, and the type of consideration paid may all have bearing on the tax consequences. Due to ever changing tax laws, it is imperative that both sides of the transaction seek legal and tax advice, in order to properly select the most effective way to structure the purchase or sale. In order to properly structure the transaction, both groups must weigh the effects of each option and how those effects will influence conditions in both the long and short run. Asset versus Stock Transactions The purchase and sale of a business can be structure in either of two basic formats: (1) the purchase of the stock of the seller's, or (2) the purchase of the assets of the seller's business. From a tax perspective, the vast majority of buyers will prefer an asset sale, and the vast majority of sellers will prefer a stock sale. As a result, the asset vs. stock question most often creates conflict between the buyer and seller. [continued...] Want to know more? Download the White Paper "The 'Hows' and 'Whys' of Structuring M&A Transactions" for just $39.95. |
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