Myths of Private Company M&A
The only deal point that matters is valuation
Structuring a transaction properly to achieve the specific needs and address the particular situation of a business owner can yield significant benefits
- Often, sellers become fixated solely on the purchase price while
neglecting the importance of overall deal structure.
- Sellers must consider personal and financial goals when evaluating
competing offers.
- For an owner that is interested in remaining actively involved in the
business after the sale, structuring a proper earn-out or employment
agreement can add significant value.
- For a seller that desires only partial liquidity, structuring a stock
transaction allows the business owner to capitalize on favorable tax
deferred treatment.
Tax implications of deal consideration
- When determining the consideration that will be received from the sale of
a business, it is important to understand the tax implications of the
various options.
- Asset Deal: The seller is paid for the assets of the business
and retains specified liabilities. From a tax perspective, an asset
deal may translate into a large upfront tax liability for the seller.
- Stock Deal: The seller is paid for the company’s shares and
does not retain any liabilities. If paid in stock, the seller has the
ability to take advantage of long-term capital gains tax rates by
retaining buyer’s stock over a period of time. To mitigate risk,
the value of stock received from the buyer can be "locked-in"
with the use of collars, puts and options, allowing the seller to
preserve value.
- Long-term capital gains tax rates are at an all time low, allowing sellers to
retain more value for their company than ever before. Currently, a seller
will pay only a 15% long-term capital gains tax rate (the lowest in history).
However, the rate will be phased up to 20% over the next five years.
GW Equity has decades of collective experience structuring the most complex of transactions
- The representatives of GW Equity have decades of collective experience
structuring transactions from a financial accounting , and legal
perspective. We are experts in structuring favorable transactions that
maximize value for our clients.
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