Middle Market M & A, 2nd Edition

CHAPTER 17Tax Provisions Used in M&A

This chapter focuses primarily on U.S. federal income tax laws that impact how merger and acquisition (M&A) transactions for closely held or privately held companies are structured; however, fully understanding and evaluating the complete tax consequences of an M&A transaction is beyond the scope of this content.^a It is not the goal of this chapter to educate one to become a tax expert, but rather to highlight the most common tax structural elements encountered by an M&A advisor in a typical middle market deal. At the end of this chapter is a short tax glossary to provide additional clarification about some of the key concepts.

As discussed in Chapter 14, “Deal Structure,” the tax attributes of an M&A transaction are one of the critical factors for deciding how a transaction will be structured. To the seller, taxes can become as much as 50% of the transaction value. Sellers may think of the government as a silent partner in the deal.

Often, sellers do not engage their tax accountant during the negotiation of a transaction, even though this is the time when these structural decisions are typically made. Most tax accountants are proficient at calculating and determining the consequences of a completed transaction. However, not all CPAs understand the balance between taxes and the other economic considerations in the deal. The M&A advisor is tasked with understanding all the economics of the deal, including the tax options that are available ...