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Mastering the M&A Process: Structuring the Sale

Taylor Gaver

by Taylor Gaver

Lyndsay Fincher

by Lyndsay Fincher

November 14, 2023

Table of contents:

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The first question any person versed in M&A will ask is “Is it an equity or asset deal?” This question goes to the very heart of the structure of a transaction, but before making that crucial decision, there are several other items to consider, such as the valuation of your business, the tax implications of a certain type of transaction, and whether the closing of a transaction will require any specific action as a result of government regulations, such as anti-trust regulations. After evaluating these items with your multidisciplinary transaction team, a suitable deal structure can be proposed and mutually agreed by buyer and seller.

Valuation of a Business

Understanding the value of your business is key when considering a sale. Oftentimes the first person to ask is an investment banker who specializes in brokering deals in your business’ industry. Investment bankers are a wealth of knowledge, not only about business valuation, but also about the purchase price a seller can expect to see in the market and how that purchase price is paid out (i.e. cash vs. stock in the buyer’s entity). Alternatively, there are firms that will perform business valuations, or a quality of earnings report for a fee. An investment bankers’ experienced opinion and/or a formal business valuation are great places to start to determine what purchase price you can expect upon the sale of your business.

Tax Implications of Mergers and Acquisitions

Evaluating the tax consequences is one of the most important drivers of creating the structure of a transaction. Many business owners sell their businesses and plan to retire with the funds from such sale, so maximizing the funds going into a seller’s bank account and minimizing the amount that is paid in taxes is crucial. Accountants, legal counsel, and investment bankers will evaluate and consider the structure of a deal and the various steps on the path to closing to identify any tax pitfalls that can be avoided. These important transaction team members can also assist with wealth management and minimization of taxes after the sale.

M&A Regulatory Considerations

In addition to tax considerations, it is crucial to be aware of any governmental regulations that can create issues with closing a deal. If a business has a specific government license or permit, the seller and the transaction team must research if any government filings or consent is necessary to transfer a license to a buyer or if any government filings or consent is necessary if the control of the business holding such license is transferred to a buyer.

Additionally, in large deals, sellers and their transaction teams must consider anti-trust regulations that govern mergers and acquisitions. Antitrust laws aim to promote fair competition and prevent monopolistic practices, and failing to comply with these regulations can lead to severe legal and financial consequences. Legal counsel will consider whether the transaction may raise concerns about market concentration and have any impact on competition, and legal counsel will determine if any governmental regulatory approvals or notifications are necessary.

Final Thoughts

The valuation of your business, tax implications, and regulatory hurdles are not the only considerations for your transaction team; however, these are three of the most important. And, while these hurdles can seem daunting, your transaction team should be well equipped to help advise you through these initial considerations and lead you into the next step of answering the question “Is it an asset deal or equity deal?”.   To read more on preparing for the M&A process, read Sellers Preparing for Action

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