Structuring Transactions

The determination of what legal and financial form a transaction will take is often the most challenging aspect of any deal. The range of available structures (asset sales, stock transfers, mergers of a variety of types, etc.), coupled with the variety of relevant factors (legal, accounting, tax, etc.), gives dealmakers both tools to use and traps to avoid as they respond to the many and often conflicting goals of buyers, sellers, investors, and lenders—not to mention tax authorities.

This section can help managers determine the most efficient and desirable form of each transaction they plan. It will be particularly useful in structuring friendly transactions involving privately owned companies. Issues unique to change of control in public companies, particularly hostile tender offers and proxy contests, are covered later.

Although dealmakers can benefit from understanding the general principles of transaction structuring, the final choice of deal structure often depends on specific tax and accounting considerations. Structuring a transaction as an asset sale can enable a buyer to avoid assuming the financial and legal liabilities of the seller and inheriting any pending disputes about them. But in some industries, structuring a transaction as an asset sale may be impractical because of regulatory, tax, or accounting issues. It is imperative to retain professional advisors for guidance in these matters. Tax and accounting pros know their way around the various regulations that can be involved in a transaction—including the United States Code (USC) that codifies all US general and permanent laws, including the tax laws that are included in the USC’s Title 26, known as the Internal Revenue Code (IRC). In addition, qualified professional advisors will be familiar with the Code of Federal Regulations (CFR) that codifies all rules and regulations under all these laws.
 

A word to the wise: do not simply skip sections on taxes and accounting out of fear that they may be arcane or complex; they are designed to accommodate both the neophyte and the old hand. Of particular importance later is a detailed discussion of tax issues triggered by recent tax laws such as the Tax Cuts and Jobs Act of 2017 (TCJA) and the Inflation Reduction Act of 2022 (IRA). While the laws left many tax law provisions untouched when it comes to M&A structuring, some aspects of the new laws may affect transaction planning.

A caveat: All tax laws and accounting principles are subject to change. In some areas of law, the pace of change is glacial. In others, change can happen at lightning speed. Keep an eye out for major changes in the tax law, as they can often affect merger taxation. Always consult with qualified tax and accounting professionals. If you are dealing with a major accounting firm or law firm, remember that most local offices have an M&A specialist and access to more specialist experts in Washington. Make sure your legal counsel has recent experience in the M&A area.